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MBSs 產品

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MBSs 產品. 課程內容. WHAT ARE MORTGAGE SECURITIES? Mortgage pass-through securities Features of Pass-Through Pass-through cash flows Pricing and Yields Collateralized Mortgage Obligations (CMO). WHAT ARE MORTGAGE SECURITIES?. Mortgage securities represent an ownership

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Presentation Transcript
  • Mortgage pass-through securities
  • Features of Pass-Through
  • Pass-through cash flows
  • Pricing and Yields
  • Collateralized Mortgage Obligations (CMO)
what are mortgage securities
  • Mortgage securities represent an ownership

interest in mortgage loans made by financial institutions (savings and loans, commercial banks or mortgage companies) to finance the borrower's purchase of a home or other real estate. Mortgage securities are created when these loans are packaged, or "pooled," by issuers or servicers for sale to investors. As the underlying mortgage loans are paid off by the homeowners, the investors receive payments of interest and principal.

mbs types
  • Mortgage pass-through securities (MPTs)

– Mortgage-backed security (MBS): FNMA

– Participation Certificates (PCs): FHLMC

– Ginnie Maes

– Private Pass-throughs

  • Mortgage Backed Bonds (MBBs)
  • Other Mortgage Derivative Securities

– Collateralized Mortgage Obligations (CMOs)

– Interest Only (IOs) and Principal Only (POs)

  • Commercial Mortgage Backed Securities (CMBS)
mortgage pass through securities
Mortgage pass-through securities
  • The most basic mortgage securities, known as "pass-throughs," or participation certificates (PCs), represent a direct ownership interest in a pool of mortgage loans.
  • These are debt obligations backed by a pool of mortgages. They usually have a pass through feature. Ginnie Mae's are the most popular type of this security. Investors have an 'undivided' interest in the pool. The investor doesn't own any particular mortgage. Rather, he has a proportionate interest in the cash flow generated by the entire pool. When we talk about a pass through feature, we mean that multi-payments of interest, principal, and sometimes pre-payment of mortgages, are passed through to the investor.
mortgage pass through securities1
Mortgage pass-through securities
  • Ginnie Mae's (Government National Mortgage Association) are comprised of VA guaranteed loans or FHA insured mortgages and are backed by the full faith and credit of the U.S. Government. Payments are received monthly by the investor.
mortgage pass through securities2
Mortgage pass-through securities
  • Fannie Mae's (FNMA) are another type of pass through. Fannie Mae's consist of some conventional mortgages and FHA insured mortgages. Fannie Mae's are not guaranteed by the full faith and credit of the U.S. Government. However, it is unlikely that the government would permit them to default. The yields on Fannie Mae's are slightly better than Ginnie Mae's.
mortgage pass through securities3
Mortgage pass-through securities
  • Freddie Mac's (Federal Home Mortgage Corporation) are similar to Fannie Mae. Freddie Mac's are 'Participation Certificates or PC's. These are comprised of FHOMC conventional mortgages on single family homes. Freddie Mac's are not guaranteed by the full faith and credit of the U.S. Government. Therefore, the yield of Freddie Mac's is a little better than Ginnie Mae's.
features of pass through



Credit risk

Generally high grade

Government guaranteed


Good for agency issued/guaranteed pass-through


Range of Coupons

Full range

Full range

Range of Maturities

Medium and long term (fast-paying and seasoned pools can provide shorter maturities than stated)

Full range

Call Protection

Complex prepayment pattern

Noncallable (some exception)

Frequency of Payment

Monthly payment of principal and interest

Semiannual interest payment

Average Life

Lower than for bullets of comparable maturity; can only be estimated due to prepayment risk

Estimate only for small number of callable issues; otherwise, known with certainty

Duration/Interest rate Risk

Function of prepayment risk; can only be estimated,; can be negative when prepayment if high

Unless callable, a simple function of yield, coupon, and maturity; is known with certainty

Basis for Yield Quotes

Cash flow yield based on monthly payments and a constant CPR assumption

Based on semiannual coupon payments and 365-day year.


Once a month

Any business day

Features of Pass-Through

Ginnie Mae I MBS

Ginnie Mae II MBS


Ginnie Mae approved mortgage lender (single issuers)

Ginnie Mae approved mortgage lender (single or multiple issuers)

Underlying Mortgages

Government insured or guaranteed loans (FHA, VA, RHS)

Government insured or guaranteed loans (FHA, VA, RHS)

Pool Types

Single-Family Level Payment MortgageSingle-Family Graduated Payment Mortgage Single-Family Growing Equity MortgageSingle-Family Buydown MortgageManufactured HousingSerial NotesMultifamily Construction LoanMultifamily Project Loan

Single-Family Level Payment MortgageSingle Family Graduated Rate MortgageSingle-Family Growing Equity MortgageSingle-Family Adjustable Rate MortgageManufactured Housing

Interest Rate on Underlying Mortgages

All mortgages in a pool have the same interest rate (except manufactured housing pools)

Mortgages in a pool may have interest rates that vary within a one percent range (except manufactured housing pools)


Timely payment of principal and interest

Timely payment of principal and interest


Ginnie Mae (full faith and credit of United States)

Ginnie Mae (full faith and credit of United States)

Principle and Interest

Paid monthly to securities holders

Paid monthly to securities holders

Payment Date

15th of the month

20th of the month

Record Date

Final day of the month before payment

Final day of the month before payment


Maximum 30 years for single-family,40 years for multifamily

Maximum 30 years

Minimum Certificate Size

$25,000; $1 Increments

$25,000; $1 increments

Minimum Pool Size

$1,000,000 (single-family); $250,000 (multifamily)

$250,000 to $1,000,000 depending on pool type

pass through cash flows
Pass-through cash flows
  • Monthly payments consisting of

– Interest on the mortgage

– Scheduled principal repayments.

– Unscheduled principal repayments.

  • The cash flow is reduced by servicing fee and guarantee fee of 50 basis points
  • Cash flow and value of MPT security depends on the cash flow from underlying mortgage
Collateralized Mortgage Obligations (CMO)

Real Estate Investment Conduits (REMICs)

  • Motivation for development of CMO structure

MPTs are unattractive investment for institutional investors because of extension and contraction risk arising from prepayment

– Extension risk

• Financial institutions: short term liabilities

• Insurance companies: guaranteed investment contracts (GIC)

– Contraction Risk

• Pension funds and life companies: defined benefit plans and annuity policy

These mortgage securities may be pooled again to create collateral for a more complex type of mortgage security known as a Collateralized Mortgage Obligation (CMO) or, since 1986, as a Real Estate Mortgage Investment Conduit (REMIC).
  • CMOs and REMICs (terms which are often used interchangeably) are similar types of securities which allow cash flows to be directed so that different classes of securities with different maturities and coupons can be created.
  • A CMO has a stated maturity. There are short term, intermediate term, and long term, CMO's.
  • The REMIC structure offers issuers a flexible tool with which to design tranches to meet investor needs and respond to market conditions. Certain REMIC tranches have been designed to reduce an investor's prepayment risk.
Sequential pay (SEQ) classes
  • Planned amortization (PACs) classes
  • Targeted amortization (TACs) classes
  • Companion or support (SUP) classes
  • Accrual (Z) classes
  • Interest only and principal only (IO/PO) classes
  • Floating-rate and inverse floating-rate (FLT/INV) classes
sequential pay seq classes
Sequential pay (SEQ) classes
  • Sequential pay classes are the most basic classes within a REMIC structure.
  • They are also called Plain Vanilla, Clean Pay, or Current Pay classes. The principal on these classes is retired sequentially; that is, one class begins to receive principal payments from the underlying securities only after the principal on any previous class has completely paid off.
  • When prepayments are faster than the prepayment speed assumed when the security is purchased (at pricing), the principal is retired earlier than expected, thereby shortening the average life of the class.
  • The opposite occurs when prepayments are slower than those assumed at pricing-the average life of a sequential pay class will extend.
planned amortization pacs classes
Planned amortization (PACs) classes
  • PACs are designed to produce more stable cash flow by redirecting prepayments from the underlying securities to other classes called companion or support classes.
  • The PAC investor is scheduled to receive fixed principal payments (the PAC "schedule") over a predetermined period of time (the PAC 94 "window") through a range of prepayment scenarios (the PAC "band").
  • Cash flow variability from changes in prepayment speed of the underlying securities is redistributed among other classes, but it is not eliminated from the underlying securities as a whole.
  • A REMIC may contain any number of PAC classes. When more than one PAC is present in a REMIC issue, the PACs are classified according to the relative width of their stated bands (e.g., PAC I, PAC II).
targeted amortization tacs classes
Targeted amortization (TACs) classes
  • TACs pay a "targeted" principal payment schedule at a single, constant prepayment speed. As long as the underlying securities do not prepay at a rate slower than this speed, the schedule will be met.
  • TACs may provide protection against increasing prepayments and early retirement of the investment ("call" or "contraction" risk). In contrast, PACs offer investors both call and extension protection.
  • TAC investors can expect higher yields than PAC investors because TACs have more cash flow uncertainty and greater extension risk. TACs may be priced to yield less than SEQs because TACs may have more stable cash flow than SEQs.
companion or support sup classes
Companion or support (SUP) classes
  • Prepayment variability from the underlying securities cannot be eliminated; it can only be redistributed. PACs, TACs, and other scheduled classes rely on companion classes to absorb this variability.
  • Companion classes have the most volatile cash flow behavior, even more than the underlying MBS.
  • When prepayment speeds fluctuate, the average life of a companion class can change dramatically. Their average lives extend during periods of low prepayments and shorten during periods of faster prepayments. Principal cash flows are paid to any PAC, TAC, or other scheduled class in a REMIC issue before they are paid to companion classes.
  • Since the prepayment behavior of the underlying securities has a direct impact on a companion class, it is important to understand the nature of the underlying securities and how they may be expected to prepay. It is also important to understand the number and type of classes that the companion supports as well as the number of companion classes in a REMIC issue. The more classes that a companion supports, the more volatile its average life will be.
  • Companion class average lives and yields-to-maturity may vary widely over time.
accrual z classes
Accrual (Z) classes
  • Z class investors receive no cash flow from the security until certain other classes are paid off.
  • Unlike other classes that pay interest each month, interest that would have been paid is added to the principal balance of the accrual class until the applicable previous classes have paid off.
  • Over time the balance grows and the interest earned, but not paid, is calculated upon this increasing balance.
  • Z classes are often the last regular class in a REMIC issue and have long average lives.
interest only and principal only io po classes
Interest only and principal only (IO/PO) classes
  • REMIC structures can contain two classes that resemble a stripped mortgage-backed security (SMBS).
  • Each class receives a portion of the monthly principal or interest payments from the underlying securities by "stripping apart" the principal and interest cash flow streams.
  • The underlying securities' scheduled principal amortization and prepayments go to the principal only (PO) class. The interest cash flow goes to the interest only (IO) class.
  • IOs and POs are complex securities that are extremely sensitive to interest rate changes because prevailing rates affect prepayments.
floating rate and inverse floating rate flt inv classes
Floating-rate and inverse floating-rate (FLT/INV) classes
  • A floating-rate class (Floater) is structured so that the coupon rate payable to the investor adjusts periodically (usually monthly) by adding a certain amount (the spread) to a benchmark index (the index), subject to a lifetime maximum coupon (the cap). The one-month LIBOR (London Interbank Offered Rate) is the most popular index, but other indices such as the 11th District Cost of Funds Index (COFi) or various constant maturity Treasury indexes have been used.
The coupon for the floating class is:

– LIBOR +0.65

  • For the inverse class the coupon rate is

– 42.4 - 4x LIBOR

  • The weighted average coupon

= (64/80)(Floater coupon rate)

+ (16/80)(Inverse floater coupon rate)

The yield of any Floater or Inverse Floater is sensitive to the rate of prepayments as well as the level of the applicable index, particularly if the coupon fluctuates as a multiple of the index (so-called Super Floaters).
  • Low levels of the index will reduce the yield of a floating-rate class and the interest rate cap will limit the investor's yield when the level of the index is high.
  • Because the rate of interest paid on an inverse floating-rate often varies inversely with a multiple of the index, any change in the index may have an exaggerated effect on the yield to the investor.
  • High levels of the index will significantly lower the yield of an inverse floating-rate class because its interest rate can fall to 0 percent.