Jumbo Pool Bonds are bonds that are secured by a set of similarly sized Mortgage Loans (MBS) from different mortgage lenders. Most often, such bonds are issued by Ginnie Mae II. Jumbo Pools have an advantage over single issuer pools, because they are collections of mortgages sold from different lenders that may belong to different geographic locations.
This allows you to diversify the risks of non-payment of mortgage loans, due to the deterioration of economic factors in a particular region (due to natural disasters, job cuts, pandemic, etc.)
Potential risks for Jumbo Pool are early loan payments or refinancing of existing mortgages at lower rates. In this case, a part of the debt will be paid on the bonds, thereby reducing the amount of profit received on interest payments.
For example, if a bond has a par value of $ 100 and the rate is 10%, which is paid once a year, then the interest payment will be $ 10. If part of the debt on mortgage loans is paid off, then the body of the debt of the bond will be paid. Thus, it will reduce the base on which the interest is calculated. For example, if 5% of mortgage loans are repaid, then the investor will receive $ 5 from each bond, but interest will be calculated from the face value of $ 95.
Examples of bonds:
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