Credit Loss Ratio

Credit loss ratios are used by the financial institutions that sell mortgage-backed securities to determine how much risk they are taking on. It does this by looking at the losses a mortgage-backed security has seen in comparison to its par value.

In layman’s terms: how much is lost compared to its actual value. Like...is it worth it to lose thousands of dollars traveling across the country to buy that dope Jeep Wrangler?

But these are kind of irrelevant for normal people and investors, because the government backs most mortgage-backed securities. So to us they really don’t have any credit risk.