Securitization: Structuring and Investment Analysis / Edition 1

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Securitization has revolutionized the business of lending. By packaging financial promises and transforming them so that they can be freely transferred among a multitude of investors, securitization has broadened the opportunities for individuals and institutions to borrow and manage risk–in the process, creating new classes of instruments for investors.

Here is the first work to bring together a full spectrum of information and ideas on securitization in one comprehensive presentation. Written by innovators and leaders in the field, Securitization describes how financial instruments can be securitized, structured, analyzed, and valued. Whether you’re an issuer or an investor, a market participant or a student, Securitization will help you more fully understand this market and its instruments.

Securitization functions as both a reference and a textbook, providing insight into not just how securitization operates, but also why. It provides a broad overview of securitization, in-depth discussions of particular products, and hands-on learning of key concepts with exercises at the end of each chapter. A companion CD-ROM, which includes calculation tools and data for models, enhances the learning experience. With Securitization, you will better understand choices available to you as an issuer or an investor, and be able to make better decisions every day.

Organized into comprehensive sections built on common principles–but written to be self-contained so that they can be read separately–this valuable resource skillfully explores the securitization market in the United States and Europe. The authors establish a framework for evaluating the securitization process and provide an excellent discussion of basic fixed-income mathematics from yield curves to complex valuation methods. Individual sections of the book are devoted to major securitization markets, including:

  • Agency Mortgage-Backed Securities (MBS)–the largest securitization market
  • Advanced MBS and analysis–CMO, option-adjusted spreads (OAS)
  • Non-agency MBS–including credit risk analysis
  • Asset-Backed Securities (ABS)–auto loans, credit card loans, and manufactured housing
  • Commercial mortgages and Commercial Mortgage-Backed Securities (CMBS)
  • The European securitization market–developments and outlook

The authors’ broad perspective provides an unparalleled view of the securitization market. Spanning the market from issuance to investment, from rating agency criteria to option-adjusted spreads, from residential loans to commercial loans, in the United States and around the world, Securitization provides you with the tools and expertise to successfully participate in the securitization market.

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Product Details

  • ISBN-13: 9780471022602
  • Publisher: Wiley
  • Publication date: 8/15/2003
  • Series: Wiley Finance Series, #219
  • Edition description: Includes CDROM
  • Edition number: 1
  • Pages: 576
  • Product dimensions: 6.42 (w) x 9.27 (h) x 1.33 (d)

Meet the Author

ANDREW DAVIDSON, one of the most well-respected names in mortgage-backed securities and securitization, is President and founder of Andrew Davidson & Co., Inc., a New York—based consulting firm specializing in the application of analytical tools to investment management. The company provides consulting advice to many of the major firms in the securitization business. It is also a leading provider of prepayment and valuation models for MBS and ABS. Prior to forming the company in 1992, Davidson was a managing director at Merrill Lynch responsible for MBS, CMO, ABS, and Futures and Options Research.

ANTHONY SANDERS is the Galbreath Distinguished Scholar and Professor of Finance at The Ohio State University. During 1997 and 1998, he was director and head of asset-backed and mortgage-backed securities research at Deutsche Bank. He has published numerous articles in journals such as the Journal of Finance, Journal of Financial and Quantitative Analysis, Journal of Business, and Journal of Fixed Income.

LAN-LING WOLFF heads Fredell & Co. Structured Finance Ltd. in London, which specializes in providing structuring and arranging services for asset-backed securities all over Europe. Wolff’s background in the U.S. mortgage-backed securities market and understanding of the European capital markets places her on the cutting edge of securitization globally. She specializes in residential mortgages and mortgage banking.

ANNE CHING, a senior consultant at Andrew Davidson & Co., Inc., has worked in the credit risk and investment analysis of sub-prime residential and manufactured housing sectors. She has also worked on the structuring of non-U.S. mortgage-backed securities.

The authors drew on the expertise of Andrew Davidson & Co., Inc., in preparing Securitization. The broad range of expertise of the firm’s consultants, and the technical and analytical skills of the firm’s analysts, provide a rich background that gives Securitization strong theoretical underpinnings, as well as a grounding in practical application of the theory and methods described in the book. Two associates from outside the firm, with additional specialized expertise, were enlisted as well.

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Table of Contents

PART ONE Introduction to Securitization

CHAPTER 1 The Role of Securitization 3

CHAPTER 2 Fundamentals of Structuring 15

CHAPTER 3 Fundamentals of Investment Analysis 29

CHAPTER 4 Historical Performance of Asset-Backed Securities and Mortgage-Backed Securities 41

PART TWO Agency Mortgage-Backed Securities

CHAPTER 5 Mortgage Loans: The Basis of Mortgage-Backed Securities 51

CHAPTER 6 Agency Pass-Throughs 75

CHAPTER 7 Fundamentals of the Interest-Rate Market 89

CHAPTER 8 Static Analysis for Mortgage Pass-Through Securities 109

CHAPTER 9 Mortgage-Backed Securities Prepayments 131

CHAPTER 10 Total-Return Scenario Analysis 155

PART THREE Advanced Mortgage-Backed Securities and Analysis

CHAPTER 11 Structuring CMOs, IOs, and POs 185

CHAPTER 12 Interest-Rate Volatility, Options, and Models 215

CHAPTER 13 Option-Adjusted Spread 249

CHAPTER 14 Comparing Investment Alternatives 275

PART FOUR Non-Agency Mortgage-Backed Securities and Analyzing Credit Risk

CHAPTER 15 Non-Agency Mortgage-Backed Securities 287

CHAPTER 16 Collateral Performance 303

CHAPTER 17 Home Equity and Subprime Loans 325

CHAPTER 18 Analysis of Credit-Sensitive Mortgage-Backed Securities 337

PART FIVE Asset-Backed Securities

CHAPTER 19 Auto-Loan Asset-Backed Securities 355

CHAPTER 20 Credit-Card Asset-Backed Securities 367

CHAPTER 21 Manufactured-Housing Asset-Backed Securities 379

PART SIX Commercial Mortgages

CHAPTER 22 Commercial Loans 391

CHAPTER 23 Commercial Mortgage-Backed Securities 409

CHAPTER 24 The Role of Real Estate Investment Trusts (REITs) 429

PART SEVEN The European Securitization Market

CHAPTER 25 Development of a Market 447

CHAPTER 26 European Residential Mortgages 465

CHAPTER 27 European Securitization Legislation 489

CHAPTER 28 Structuring Asset-Backed Securities in Europe 503

Bibliography 527

Additional Resources 531

About the CD-ROM 533

Index 537

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