The Handbook of Mortgage-Backed Securities / Edition 6

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The classic and still the best investor's guide to the mortgage-backed securities market

Mortgage-backed securities continue to be one of the most exciting, fastest-growing sector of the fixed income market. According to the Mortgage Bankers Association, of the estimated $3 trillion in mortgage loans made in 2005, fully 80 percent ended up in mortgage-backed securities, representing a phenomenal 61 percent growth since 2001.

For more than twenty-five years, the number-one resource for both private investors and professional portfolio managers looking to gain a practical understanding of the rapidly evolving MBS market has been The Handbook of Mortgage-Backed Securities. Like its predecessors, this latest edition of Frank Fabozzi's classic draws upon the insights and expertise of an impressive team of international experts to fill you in on MBS fundamentals and bring you up to speed on state-of-the-art investment strategies. Covering the full range of MBS products (agency, nonagency, and resident ABS) and derivatives, the Handbook explores the many advantages and potential pitfalls inherent in the market and shows you how to:

  • Invest in the full range of products backed by mortgage loans
  • Value all types of MBS
  • Control interest rate risk
  • Exploit proven portfolio management tools and techniques
  • Use sophisticated hedging strategies and tools

Fully revised and expanded to provide coverage of the latest MBS products, valuation methodologies, prepayment models, and trading strategies, Handbook of Mortgage-Backed Securities, Sixth Edition is the definitive guide to capitalizing on the opportunities in today's MBS marketplace.

First introduced more than thirty-five years ago, mortgage-backed securities have, over the past decade, burgeoned into one of the most dynamic sector of the fixed income market. Nowadays no investment portfolio would be considered truly balanced without a significant exposure to the MBS sector to match that of a broad-based bond market index and enhance returns relative to a benchmark.

From the beginning, Frank J. Fabozzi's investment classic, The Handbook of Mortgage Backed Securities, has been instrumental in fueling the phenomenal growth of the market. Through five successive editions, the Handbook has armed investors with timely, authoritative coverage of all key fundamental and technical aspects of MBS, along with frank appraisals of the opportunities as well as the risks involved with these continually evolving instruments.

This new edition is no exception. Like its predecessors, it brings together contributions by an all-star team of experts who share what they know about today's MBS markets. Much more than a mere revision, The Handbook of Mortgage-Backed Securities, Sixth Edition has been substantially updated and expanded. In it you'll find up-to-the-minute coverage of the latest mortgage-backed products, valuation methodogies, prepayment models, relative value analysis, trading techniques, and portfolio strategies, organized around the seven key areas of:

  • The fundamentals of MBS products and the mortgage market
  • Alternative mortgage products—from hybrids and Alt-A mortgages to asset-backed securities
  • Mortgage derivatives, including stripped MBS, PAC bonds, Z bonds, companion bonds with schedules, and inverse floating-rate CMOs
  • Prepayment models and behaviors, with an emphasis on the latest advances in prepayment modeling and valuation
  • Portfolio management tools and techniques, from MBS valuation models to drivers of the call decision
  • Hedging tools and approaches, including the use of options and prepayment derivatives and tips on how to improve the structure of MSR hedging programs
  • Commercial mortgage-backed securities—including CMBS default risk management, types of CMBS IOs, cash flow characteristics, and more

Following in a proud tradition begun a quarter century ago, The Handbook of Mortgage-Backed Securities, Sixth Edition is the definitive resource for those seeking to understand and capitalize on the latest generation of MBS products and trading techniques.

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Editorial Reviews

A thorough survey of state-of-the-art strategies for capitalizing on the opportunities in the mortgage-backed securities market, examining the fundamentals of these securities and the investment characteristics that make them attractive to a broad range of investors. This edition (2nd was 1988) is substantially rewritten: 32 of the 41 chapters are new, while the other nine contain updated information. Annotation c. Book News, Inc., Portland, OR (
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Product Details

  • ISBN-13: 9780071460743
  • Publisher: McGraw-Hill Professional Publishing
  • Publication date: 12/21/2005
  • Edition description: REV
  • Edition number: 6
  • Pages: 950
  • Sales rank: 549,770
  • Product dimensions: 6.40 (w) x 9.30 (h) x 2.50 (d)

Meet the Author

Frank J. Fabozzi, Ph.D., CFA, CPA, is the Frederick Frank Adjunct Professor of Finance at Yale University's School of Management. One of the world's foremost authorities on fixed income securities and derivative instruments, Dr. Fabozzi is editor of the Journal of Portfolio Management and the bestselling author of more than forty books, including the acclaimed The Handbook of Fixed Income Securities. Prior to joining the Yale faculty, he was on the faculty of MIT's Sloan School of Management.

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Table of Contents

Contributing Authors
1 Overview 1
2 Mortgages 9
3 Mortgage Pass-Through Securities 29
4 Agency Adjustable-Rate Mortgage Securities 59
5 Trading, Settlement, and Clearing Procedures for Agency MBS 81
6 Collateralized Borrowing via Dollar Rolls 91
7 Multifamily Project Securities 103
8 Mortgage Prepayment Modeling: I 127
9 Mortgage Prepayment Modeling: II 143
10 Modifying the PSA Curve for Newly Issued Mortgage Pass-Throughs 169
11 Homeowner Mobility and Mortgage Prepayment Forecasting 177
12 An Unbiased Method of Applying Historical Prepayment Speeds to Project Future Cash Flows 187
13 RFC Whole Loan Prepayment Behavior 195
14 Stripped Mortgage-Backed Securities 225
15 Synthetic Mortgage-Backed Securities 249
16 Introduction to Collateralized Mortgage Obligations 263
17 Prospects of Derivative Mortgage Securities 293
18 The Effect of PAC Bond Features on Performance 301
19 Z-Bonds 327
20 Companions with Schedules 349
21 Inverse Floaters and Inverse IOs 367
22 CMO Residuals 395
23 Whole-Loan CMOs 413
24 Understanding and Valuing Mortgage Security Credit 449
25 Commercial Mortgage-Backed Securities 491
26 Quantifying Credit Risk in CMBS 545
27 New Ways to Model Default Scenarios for Income Property Loans 565
28 A Comparison of Methods for Analyzing Mortgage-Backed Securities 587
29 Introduction to the Option-Adjusted Spread Method 611
30 A Further Look at Option-Adjusted Spread Analysis 625
31 Consistent, Fair and Robust Methods of Valuing Mortgage Securities 641
32 Towards a New Approach to Measuring Mortgage Duration 667
33 Duration and Convexity Drift of CMOs 677
34 Understanding Inverse Floater Pricing 691
35 Hedging Interest-Rate Risks with Futures, Swaps and Options 703
36 Risk, Return and Hedging of Fixed-Rate Mortgages 783
37 Options on Mortgage-Backed Securities 827
38 FAS 115 and MBS Portfolio Management 843
39 Federal Income Tax Treatment of Mortgage-Backed Securities 867
Appendix 933
Index 941
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