All over the World Hosing, development plays a significant role in the economic development of every country. Most economists believe that the housing sector can work as a locomotive in any economy as a significant number of direct and indirect backward linkages can help any government to achieve some of its major objectives such as employment generation, and GDP growth, besides, providing housing solutions to its citizen. However, the growth of the sector is linked with the growth of housing finance. But housing finance segment lacks long-term source of funding and thereby cannot offer very long-term financing. Also, they face asset-liability mismatch. Mortgage Backed Securities (MBS), a relatively new product can contribute significantly in overcoming the availability of long-term fund for housing finance companies. The objective of this paper is to provide a conceptual understanding of Mortgage Backed Securitization (MBS) as well to provide a working model for future MBS issuance in Bangladesh.

Securitization is a process whereby commercial or consumer credits are packaged and sold in the form of financial instruments. A typical process of securitization involves the sale of specific loans to a Trust or to a Special Purpose Vehicle (SPV). The SPV or Trust in turn issues securities (promissory notes, participation certificates or other debt instruments) to the investors. The securities are rated by an independent credit rating agency. Sometimes, on the recommendation of the credit rating agency, additional credit support other than the obligation of the borrowers is provided in order that the instrument may receive the desired level of rating. Typically the seller of the loans continues to service them. The excess cash flows (remaining after deducting the interest and the principal and other monies payable to the investors), and other fees accrue to the seller. Mortgage-backed securities (MBS) are debt obligations that represent claims to the cash flows from pools of mortgage loans, most commonly on residential property. Mortgage loans are purchased from banks, mortgage companies, and other originators and then assembled into pools by an entity. The entity then issues securities that represent claims on the principal and interest payments made by borrowers on the loans in the pool, a process known as securitization. Mortgage-backed securities exhibit a variety of structures. The most basic types are pass-through participation certificates, which entitle the holder to a pro-rata share of all principal and interest payments made on the pool of loan assets.