Mortgage-Backed Securities: Products, Structuring, and Analytical Techniques / Edition 2

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Overview

Mortgage-Backed Securities

In the last two decades, the market for mortgage-backed securities (MBS) has quickly grown. In addition to its size, this market has also become increasingly flexible and dynamic.

Frank Fabozzi, Anand Bhattacharya, and William Berliner understand the intricacies of the MBS market, and now, with Mortgage-Backed Securities, they share this essential information with you.

Filled with in-depth insights and expert advice, this comprehensive guide skillfully addresses the investment characteristics, creation, and analysis of mortgage-backed securities. Each informative chapter outlines the products, structures, and analytical techniques traders and investors need to be familiar with in order to succeed on a daily basis.

Written for financial professionals by financial professionals, this book covers a variety of MBS-related issues, including:

  • An overview of prepayment and default behavior and performance metrics
  • Fundamental MBS structuring techniques—such as divisions of principal and interest
  • The structuring of private-label CMOs
  • Measuring MBS interest-rate risk
  • Evaluating senior MBS and CMOs
  • An option theoretic approach to valuing MBS
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Product Details

  • ISBN-13: 9781118004692
  • Publisher: Wiley, John & Sons, Incorporated
  • Publication date: 9/21/2011
  • Series: Frank J. Fabozzi Series , #200
  • Edition number: 2
  • Pages: 352
  • Sales rank: 489,478
  • Product dimensions: 6.00 (w) x 9.10 (h) x 1.40 (d)

Meet the Author

Frank J. Fabozzi is Professor in the Practice of Finance in the School of Management at Yale University. Prior to joining the Yale faculty, he was a Visiting Professor of Finance in the Sloan School at MIT. He is a Fellow of the International Center for Finance at Yale University and on the Advisory Council for the Department of Operations Research and Financial Engineering at Princeton University. Professor Fabozzi is the editor of the Journal of Portfolio Management and an associate editor of the Journal of Fixed Income. He earned a doctorate in economics from the City University of New York in 1972. In 2002 was inducted into the Fixed Income Analysts Society’s Hall of Fame and is the 2007 recipient of the C. Stewart Sheppard Award given by the CFA Institute. He earned the designation of Chartered Financial Analyst and Certified Public Accountant. He has authored and edited numerous books in finance.

Anand K. Bhattacharya is a Managing Director at Countrywide Securities Corporation (CSC), a wholly owned affiliate of Countrywide Financial Corporation. He joined CSC in 1999, where he is responsible for the management of fixed income research and strategies. Immediately prior to joining Countrywide, he was Managing Director responsible for capital markets, risk management and portfolio management oversight at Imperial Credit Industries Inc (ICII) from March 1998 to January 1999. Prior to his employment at ICII, Dr. Bhattacharya held positions at Prudential Securities Inc. from 1990 to 1998 with the most recent position as Managing Director, Global Head of Fixed Income Research. His prior employment includes positions in fixed income research and product management at Merrill Lynch Capital Markets, Franklin Savings Association and its subsidiaries and Security Pacific Merchant Bank. Dr. Bhattacharya has written extensively in various facets of fixed income analysis and portfolio management. He has authored or coauthored over 65 publications in various academic and professional journals and industry handbooks. He holds a Ph.D. in Finance and Quantitative Methods from Arizona State University.

William S. Berliner is Executive Vice President in charge of the Mortgage Strategies group at Countrywide Securities Corporation. In this capacity, he oversees the generation of relative value analysis and strategies, and writes and edits many of the firm’s reports and publications. He began his career in the Government Operations Department of Bear, Stearns and Co. in 1985. He moved to the Mortgage trading desk in 1987 as a clerk and joined the CMO desk in 1989. He worked on the CMO desk at Bear until 1993, when he left to join Nikko Securities, where he eventually ran CMO trading. He joined Countrywide as a trader in 1996 and moved to the Research Department in early 1998. Mr. Berliner has a BA in Interpersonal Communications from Rutgers College and an MBA in Finance from the Rutgers Graduate School of Business.

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Table of Contents

Preface.

About the Authors.

PART ONE: Introduction to Mortgage and MBS Markets.

Chapter 1: Overview of Mortgages and the Consumer Mortgage Market.

Overview of Mortgages.

Mortgage Loan Mechanics.

Risks Associated with Mortgages and Mortgage Products.

Chapter 2: Overview of the Mortgage-Backed Securities Market.

Creating Different Types of MBS.

MBS Trading.

The Role of the MBS Markets in Generating Consumer Lending Rates.

Cash Flow Structuring.

PART TWO: Prepayment and Default Metrics and Behavior.

Chapter 3: Measurement of Prepayments and Defaults.

Prepayment Convention Terminology.

Delinquency, Default, and Loss Terminology.

Chapter 4: Prepayment Behavior and Performance.

Prepayment Behavior.

Drivers of Prepayment Activity.

Additional Factors Affecting Prepayment Speeds.

Prepayment Behavior of “Nonfixed-Payment” Products.

Summary.

PART THREE: Structuring.

Chapter 5: Introduction to MBS Structuring Techniques.

Underlying Logic in Structuring Cash Flows.

Structuring Different Mortgage Products.

Fundamentals of Structuring CMOs.

Chapter 6: Fundamental MBS Structuring Techniques: Divisions of Principal.

Time Tranching.

Planned Amortization Classes (PACs) and the PAC/Support Structure.

Targeted Amortization Class Bonds.

Z-Bonds and Accretion-Directed Tranches.

A Simple Structuring Example.

Chapter 7: Fundamental MBS Structuring Techniques: Divisions of Interest.

Coupon Stripping and Boosting.

Floater/Inverse Floater Combinations.

Two-Tiered Index Bonds (TTIBs).

Excess Servicing IOs.

Chapter 8: Structuring Private Label CMOs.

Private Label Credit Enhancement.

Private Label Senior Structuring Variations.

Chapter 9: The Structuring of Mortgage ABS Deals.

Fundamentals of ABS Structures.

Credit Enhancement for Mortgage ABS Deals.

Factors Influencing the Credit Structure of Deals.

Additional Structuring Issues and Developments.

PART FOUR: Valuation and Analysis.

Chapter 10: Techniques for Valuing MBS.

Static Cash Flow Yield Analysis.

Zero-Volatility Spread.

Valuation Using Monte Carlo Simulation and OAS Analysis.

Total Return Analysis.

Chapter 11: Measuring MBS Interest Rate Risk.

Duration.

Convexity.

Yield Curve Risk.

Other Risk Measures.

Illustration of Risk Measures.

Summary.

Chapter 12: Evaluating Senior MBS and CMOs.

Yield and Spread Matrices.

Monte Carlo and OAS Analysis.

Total Return Analysis.

Comparing the Analysis of Agency and Private Label Tranches.

Evaluating Inverse Floaters.

Summary.

APPENDIX: An Option-Theoretic Approach to Valuing MBS.

Option-Theoretic Models for Valuing MBS.

An Option-Based Prepayment Model for Mortgages.

Valuation of Mortgages.

A Closer Look at Leapers and Laggards.

Valuation of MBS.

Summary.

INDEX.

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