What is 'Generic Securities'

A generic security is backed by recently issued loans or mortgages. Its value is less than that of a security whose backing is over one year old. Securities over a year old are called seasoned securities.

BREAKING DOWN 'Generic Securities'

A generic security does not yet have a history that potential investors can look to for past performance rating as a seasoned security does. However, as they are valued less by investors, generic securities are less expensive to purchase. While their value is lower than the older investment options, their pricing may make them more attractive to some types of investors. 

A mortgage-backed security (MBS) is secured by a mortgage or a collection of mortgages. The mortgages are sold to a group of individuals (a government agency or investment bank) that packages the loans together into a security that investors can buy. The mortgages of an MBS may be residential or commercial, depending on whether it is an Agency MBS or a Non-Agency MBS. In the United States, they may be issued by structures set up by government-sponsored enterprises like Fannie Mae or Freddie Mac, or they can be "private-label," issued by structures set up by investment banks.

Why Rates are Lower on Generic Securities

One possible reason for the lower rates on generic securities is that the underlying mortgages or loans backing the security are too new to be considered stable. The incidence of default on these types of debt obligations is traditionally understood to be higher during the first twelve months after issuance. Once payments on the debts have remained current during that first year, confidence increases. This will turn a generic security into a seasoned security.

It's important for investors to look closely at the nature of the debt obligations that provide the support for any generic security. Once someone understands the nature of those loans and mortgages and get an idea of the risks one way or another that those debts would be settled in a timely manner, it will be easier to focus attention on investments that are more likely to earn a return. At the same time, this type of activity will also increase the chances of identifying generic securities that carry a higher degree of risk than is comfortable for the investor. Assuming the investor is correct, the effort to carefully evaluate the viability of an investment can prevent losses while also allowing an investor to move on to a more promising investment.

RELATED TERMS
  1. Security

    A security is a fungible, negotiable financial instrument that ...
  2. Borrowing Power Of Securities

    The value associated with being able to invest in securities ...
  3. 100% Mortgage

    100% mortgage is a mortgage loan in which the borrower receives ...
  4. Secured Note

    A secured note is a type of loan that is backed by the borrower's ...
  5. Seasoned Issue

    A seasoned issue is the issue of additional securities from an ...
  6. Long Market Value

    The long market value is the current market value of the securities ...
Related Articles
  1. Trading

    5 Generic Products That Are Just As Good

    While some generic products are second-rate, others are just as good as the real thing. Here are six generics that take the cake.
  2. Investing

    What's a Debt Security?

    A debt security is a financial instrument issued by a company (usually a publicly traded corporation) and sold to an investor.
  3. Personal Finance

    How To Become a Mortgage-Backed Securities Analyst

    Specializing in structured or derivative credit products like mortgage-backed securities requires education and prior experience in the mortgage field.
  4. Retirement

    10 Ways to Borrow in Retirement

    Before you take money from your nest egg, consider these 10 other ways to borrow in retirement.
  5. Investing

    Top 3 Mortgage Backed Securities (MBS) ETFs (MBB, MBG)

    Discover some of the best opportunities for investors seeking exposure to mortgage-backed securities through utilizing exchange-traded funds.
  6. Investing

    Financing Basics For First-time Homebuyers

    If you're looking to get your first mortgage, there are many financing options available.
  7. Personal Finance

    Mortgage Company

    A company engaged in the business of originating and/or funding mortgages for residential or commercial property.
  8. Insurance

    How to Profit from the Generic Drug Trend

    Generic drugs are poised to steal market share as patent protections on a number of branded drugs expire. Investors should be ready, too.
  9. Investing

    FDA Rejects Mylan's Generic Version of Advair

    Glaxo is relieved after the FDA rejected rival Mylan's generic version of GSK's Advair.
  10. Personal Finance

    The New Mortgage Business: More Than Just Loans

    Many mortgage brokers adapted to the post-subprime environment by becoming loan modification specialists.
RELATED FAQS
  1. Common examples of marketable securities

    Learn about marketable securities and the most common types of debt and equity securities, including common stock, bonds ... Read Answer >>
  2. How can I calculate the expected return of my portfolio?

    Understand the components of the equation used to calculate the expected return of an investor's portfolio. Learn why the ... Read Answer >>
  3. How do I evaluate a debt security?

    Look at a brief overview of the important factors to consider before purchasing a debt security, such as a corporate or government ... Read Answer >>
Hot Definitions
  1. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  2. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  3. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  4. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  6. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
Trading Center