Housing bonds are Bonds backed by mortgages such as those issued to fund a housing project. As with traditional mortgage backed securities, housing bonds are subject to prepayment risk. This is the risk that mortgages will be paid off early and the bond will essentially be called before maturity.
Housing bonds are a form of revenue municipal bond. This means that if the revenues from the housing project they are issued to fund cannot cover the bond payments, the municipality associated with the bond is not on the hook for the payments. Traditionally housing bonds have been prone to higher levels of defaults than traditional municipal bonds. In fact between 1970 and 2011 housing and healthcare related bonds were responsible for over 75% of all municipal bond defaults. You can learn more about municipal bond defaults, safety and credit ratings below:
For more definitions and explanations please visit the Learn Bonds glossary where we give the meaning of many additional bond terms.
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