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<p>[QUOTE=&quot;NorthKorea, post: 1724238, member: 29643&quot;]To create a further parallel which might be more acceptable:</p><p><br /></p><p>Mortgage lender (A) offers $500k lending facility to home-buyer (B) with expectation to pay 3% APR rolled into an amortized payment schedule over a set period. The house is placed as security against said facility.</p><p><br /></p><p>Interest rates rise, and A needs to find cash without taking out too many loans itself due to regulations. A sells B&#039;s mortgage paper to a third credit lending party (C) at a discount (after accounting for payments already made).</p><p><br /></p><p>Interest rates drop (return to the original credit environment), and C decides to resell the paper at a profit to D.</p><p><br /></p><p>Basically, the mortgage is a promissory note (contract) secured by a house (commodity).</p><p><br /></p><p>While the commodity does secure the contract, the existence of the commodity is no longer pertinent to fulfillment of the contract.</p><p><br /></p><p>In essence, that is a CME futures contract: A promise to deliver a commodity at a future date at a fixed price. As a term of the contract, the buyer accepts that sometimes delivery will be in the form of net cash difference between current market price at contract price.[/QUOTE]</p><p><br /></p>

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