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11 Cards in this Set
- Front
- Back
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mtg-strips
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principal-only (PO), interest-only (IO). critical driver is prepayment expectations
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PO's
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typically long positive duration, rise in value when rates decline
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IO's
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typically negative durations, behave similar to bond puts when rates rise
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IOs & POs can also be created as part of a
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CMO deal (structured IO/PO)
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fixed rate agency pooling
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agency fixed rate MBS traded according to cpns, normally securitized in 50bp increments. even cpn & half-cpn (6.0% vs. 6.5%). sometimes quarter & eighth originated. loans originated in increments of 12.5bp (1/8th of a pct)--as part of transformation, some cash flows from loan interest stream allocated for servicing and credit support payments; gauranty fees ("g-fees"), required servicing or base servicing (mtg svcing rights/MSRs), excess svcing [25]
g-fees sometimes capitalized/"bought down"=paid upfront fee to GSE pooling up, pooling down GSEs buy loans for cash proceeds through the "cash window" |
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adjustable rate agency pooling
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weighted avg cpn (WAC)- avg of net note rates weighted by balances
no excess svcing is held in order to decrease net note rates of the loans to a target lvl g-fees generally not bought down (buydown pricing not efficient in ARM sector) pools contain loans with note rates below cpn rate |
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private label securitization
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"splits" dictated by rating agencies, based upon likelihood of losses for the subj. collat.
subordination (senior/sub deals) shifting interest structures overcollateralization/OC structures WAC IOs & POs net note rate discount loans "grossed up" to cpn rate--for each note rate, a small amt of PO specified by "PO Percentage"=[deal coupon-note rate]/deal coupon PO pctge for each stratum multiplied by its FV, sum of the POs for all discount note rates is the size of the WAC PO notional values of WAC IO is combined notional value of all loans having premium note rates, and cpn is the avg of the strip cpns weighted by their notional balances |
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forward market (MBS trading)
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trade agreed upon at a price for settlement at some future date
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Bond Mkt Assoc publishes (MBS trading)
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delivery date for a variety of products over course of each month
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mkt structure (MBS trading)
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a predefined pool or pools can be traded- "specified pool" trade; pool # & orig bal of pool (before paydowns)
a so-called to-be-announced (TBA) trade- actual pools not provided by the seller until just before settlement a stipulated trade- variation of TBA, but underlying chars of pool specified more precisely than in a std TBA trade ("stipped") |
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dollar roll
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simultaneously buying positions for one settlement month and selling the identical position for another
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