Basics of Residential Mortgage Backed Securities
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About the Lecture
The lecture Basics of Residential Mortgage Backed Securities by Edu Pristine is from the course Archiv - Market Risks. It contains the following chapters:
- AIM Statements
- Securitization Process
- Agency and Non Agency MBS
- Mortgage Prepayment
- Weighted Average Maturity/Coupon
- Measuring Prepayment Speeds
- PSA Prepayment Benchmark
- Problem - Calculating the SMM
- Effective Duration
- Collateralized Mortgage Obligations
- Sequential CMOs
- Planned Amortization Class
- Interest Only Strips
Author of lecture Basics of Residential Mortgage Backed Securities
Edu Pristine
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Excerpts from the accompanying material
... participants in the residential MBS market. Describe the mortgage prepayment option and the factors that influence prepayments. Describe the impact on a MBS of the weighted average maturity, the weighted average coupon and the speed of prepayments of the mortgages ...
... These loans are then sold to a separate entity called Special Purpose Vehicle (SPV) in exchange for cash. Issuer will ...
... are guaranteed by any of the three government sponsored enterprises: Ginnie Mae - Fannie Mae - Freddie Mac. Most of the MBSs are ...
... entire outstanding balance. Factors the influence prepayments: Lower interest rates - Refinancing opportunities - Seasonality ...
... pool is equal to the weighted average of all mortgages in the pool. Each weight is determined by the relative outstanding balance to the ...
... future economic conditions. CPR can be converted in monthly prepayment rate known single monthly mortality rate (SMM). SMM of 8 % implies that 8 % is the pool's beginning of the month outstanding balance, ...
... monthly prepayment rate of the mortgage pool increases as the age of the mortgage increases. The standard benchmark is referred to as 100 ...
... the 4th and 20th months, assuming the PSA to ...
... formula: Where P = current price of MBS P + = price of MBS for the given increase in ...
... rates (parallel shift) P = price of MBS for the given decrease in interest rates (parallel shift) 102 ...
... designed in such a way that they offer varying levels of prepayment risk. Therefore, they are ...
... tranche Z is in place. This tranche receives only interest cash flows and a no principal cash flows to begin with. When all the ...
... one PAC tranche and one support tranche. The special feature of this CMO is that the payments to the PAC remain constant. All the fluctuations in the ...
... and PSA rises. The effective duration of IO strips is significant and negative. There is a strong positive ...
... principal cash flow. Value of the PO strips rise dramatically when the interest rate falls and PSA rises. The effective duration of PO ...
