Mortgage-Backed Securities 新發展. 姜堯民 政大財管系副教授 于 台科大企業管理研究所 2000/10/26. Financial Intermediation. Traditionally, banks 1) originate a loan; 2) retain the loan in their portfolio of assets, thereby accepting the credit risk associated with the loan;
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1) originate a loan;
2) retain the loan in their portfolio of assets, thereby accepting the credit risk associated with the loan;
3) service the loan (collect payments and take legal action if payments were not made; and
4) obtain funds from the public with which to finance their assets.
1) originate a loan;
2) sell the loan to an investment banking firm that creates a security backed by the pool of loans;
3) the investment bankers obtain credit risk insurance for the pool of loans from an insurance company;
4) the investment banker can sell the right to serve the loan to another bank or a company specializing in servicing loans; and
5) the investment banking firm can sell the securities to individual and institutional investors.
- Mortgage passthrough securities, or simply, passthrough
- Collateralized mortgage obligations (CMOs)
- Stripped mortgage-backed securities
- Most popular form of mortgage-backed security
- Represents sale of mortgages
- Taxed only at investor level
- Commits to pay P,I, and prepayments each month as received
- "Modified" pass through guarantees timely payment
- Greatest volume issued by FNMA, FHLMC and GNMA surrogates
- Private entities also issue
- Swap program provided more options to originators
- Debt instrument secured by pool of mortgages
- Appeals to investors who can't tolerate prepayment
- A Derivative: different from the underlying mortgages even though CMO distributions are derived from the mortgages
- Issued in multiple maturities or tranches
- Cash flow is distributed in sequential order (A,B,C,Z tranches)
- A method for issue debt, reduce prepayment risk and shift remaining prepayment risk to the investor
- Quoted with a stated maturity within a range
Prevailing MBS Arbitrage Strategies structure offers issuers a flexible tool with which to design tranches to meet investor needs and respond to market conditions. There are several derivations, including:
1. generating interest rate paths
CIR model is applied.
2. generating cash flows
Prices and prepayment rates of MBSs of the FNMA are collected from Bloomberg.