Jumbo pools

Jumbo pools  

Many people find the various financial jargon and concepts difficult to understand. One such phrase is “Jumbo Pool.” Now, how does one define this concept, and why is it important in the world of finance? This blog article will provide you with a detailed description of jumbo pools to assist you in better grasping the idea. 

What are Jumbo Pools? 

Jumbo pools are Ginnie Mae II mortgage-backed securities (MBS) that involve numerous issuers and are collateralized by large pools. These pools are larger than single-issuer ones since they incorporate comparable features of mortgage loans. Jumbo pools often include a wider variety of mortgages from different countries than single-issuer pools. 

Understanding Jumbo pools 

Securitization allows for the pooling of mortgage loans from many lenders into larger ones; jumbo pools are a good example. Typically, investors get payments from a central paying agency once per year or six months for the principal and interest on these securities. 

Within a one percentage point range, interest rates on mortgage loans included in the jumbo pools might vary. Because interest rates are not allowed to fluctuate much, investors may be certain that they will receive regular and stable payments for principal and interest. Many issuers put their money into these pools, making them a more secure way to invest in mortgage-backed securities (MBS). 

Benefits of Jumbo pools 

Jumbo pools often take on less risk than more conventional mortgage pools. The risk associated with any mortgage-backed security is real, but many of the causes of default are reduced when the pool is diversified by location. 

Some regional industries may close their doors, or a natural calamity may strike, forcing mortgage holders to default on their debts. Although the likelihood of a debtor losing their job is statistically high, local economic downturns are often followed by defaults due to job loss since economies tend to differ widely. Therefore, compared to mortgage loan pools from a single lender, jumbo pools are less vulnerable to fluctuations in the local economy. 

Risks of Jumbo pools 

Investors run the risk of losing money if the jumbo pool’s mortgages are paid off early. People who have mortgages have the option to pay them off early by making additional payments or selling their homes and paying off the whole amount at once. Mortgage holders have the option to refinance their loans at a cheaper rate and pay off the full balance when interest rates decline. 

As the loans in the jumbo pool are paid off, the principal payment naturally shrinks, which is another risk that investors in the pool face. The amount of interest that must be paid also lowers as the principal outstanding decreases. 

The interest will amount to $600 in this case if the principal is $10,000 and the interest rate is 6%. Following a $100 payment or prepayment on the pool’s principle, the following interest payment will be applied to the lesser amount, which is $594 (6% of $9,900). 

No one investing in mortgage-backed securities is immune to the dangers of principal reduction and early loan repayment; they impact all pools, not just jumbo ones. 

Example of Jumbo pools 

An annual interest payment of $10 would be due on a bond with a par value of $100 and a 10% interest rate. If a portion of the home loan obligation is settled, the bond’s principal amount will be settled, diminishing the basis for interest calculation. In the case of a 5% repayment rate on home loans, for instance, the investor would get $5 from each bond, with interest deducted from the $95 face value. 

Large pass-through securities backed by pools of several issuers are known as jumbo pools. Because they include a wider variety of mortgages not tied to any one location, these pools are generally considered safer than single-issuer pools. Despite being vulnerable to early payment risk and principal shrinkage, these pools are nonetheless thought of as less volatile investments than single-issuer pools. 

Frequently Asked Questions

The mortgage loans that make up a mortgage pool are either originated by or acquired by the lender. In contrast to single-issuer pools, which are more location-specific, lender-computed mortgage pools include borrowers from various geographic areas. 

Private mortgage lenders offer massive loans, also referred to as jumbo mortgages, for extremely expensive homes, with loan amounts of $650,000 or more. Any mortgage that is not backed by the federal government is more broadly referred to as a conventional loan. 

Collateralised mortgage obligations (CMOs) and pass-through mortgage-backed securities are the two main categories of MBS. 

A safer way to invest in mortgage-backed securities (MBS) is through jumbo pools, which make principal and interest payments to investors more predictable and less unpredictable. 

    Read the Latest Market Journal

    Back in Business: The Return of IPOs & Top Traded Counters in March 2024

    Published on Apr 17, 2024 404 

    Start trading on POEMS! Open a free account here! At a glance: Major indices continue...

    Weekly Updates 15/4/24 – 19/4/24

    Published on Apr 15, 2024 67 

    This weekly update is designed to help you stay informed and relate economic and company...

    From $50 to $100: Unveiling the Impact of Inflation

    Published on Apr 12, 2024 150 

    In recent years, inflation has become a hot topic, evoking strong emotions as the cost...

    Japan’s Economic Resurgence: Unveiling the Tailwinds Behind Nikkei 225’s Record Leap

    Published on Apr 11, 2024 84 

    Source: eSignal, Intercontinental Exchange, Inc. In the heart of Japan’s economic landscape, the Nikkei 225...

    Weekly Updates 8/4/24 – 12/4/24

    Published on Apr 8, 2024 109 

      This weekly update is designed to help you stay informed and relate economic and...

    What Makes Forex Trading Attractive?

    Published on Apr 2, 2024 191 

    In a world where the click of a button can send goods across oceans and...

    Weekly Updates 1/4/24 – 5/4/24

    Published on Apr 1, 2024 98 

    This weekly update is designed to help you stay informed and relate economic and company...

    How to soar higher with Positive Carry!

    Published on Mar 28, 2024 137 

    As US Fed interest rates are predicted to rise 6 times this year, it’s best...

    Contact us to Open an Account

    Need Assistance? Share your Details and we’ll get back to you


    This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

    An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

    Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

    Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

    The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.  

    The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

    The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

    This advertisement has not been reviewed by the Monetary Authority of Singapore.  


    Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
    250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
    Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com