固定收益证-券Agency-Mortgage-P课件.ppt

1、Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-1Chapter 11 Agency Mortgage Pass-Through Securities Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-2Learning ObjectivesAfter reading this chapter, you will understandq what a mortgage isq what a mortgage-backe

2、d security isq the different sectors of the residential mortgage-backed securities marketq what a mortgage pass-through security isq the cash flow characteristics of mortgage pass-through securitiesq the importance of prepayment projections in estimating the cash flow of a mortgage pass-through secu

3、rityq the WAC and WAM of a pass-through securityq the different types of agency pass-through securitiesCopyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-3Learning Objectives (continued)After reading this chapter, you will understandq what the PSA prepayment benchmark is and how it

4、 is used for determining the cash flow of a pass-through securityq the factors that affect prepayments for agency mortgage-backed securitiesq what the cash flow yield is and its limitationsq how the average life of a mortgage pass-through security is calculatedq why prepayment risk can be divided in

5、to contraction risk and extension riskq the market trading conventions of mortgage pass-through securitiesCopyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-4Sectors of the RMBS Marketq The residential mortgage market can be divided into two subsectors based on the credit quality o

6、f the borrower: prime mortgage market and subprime mortgage market.The prime sector includes loans that satisfy the underwriting standard of Ginnie Mae, Fannie Mae, and Freddie Mac (i.e., conforming loans) The subprime mortgage sector is the market for loans provided to borrowers with an impaired cr

7、edit rating or where the loan is a second lien; these loans are nonconforming loans.Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-5Sectors of the RMBS Market (continued)q All of the prime and subprime loans can be securitized in different sectors of the RMBS market.q Loans tha

8、t satisfy the underwriting standard of the agencies are typically used to create RMBS that are referred to as agency mortgage-backed securities (MBS).q All other loans are included in what is referred to generically as nonagency MBS.q The agency MBS market includes three types of securities:i. agenc

9、y mortgage pass-through securitiesii. agency collateralized mortgage obligations (CMOs)iii.agency stripped MBSCopyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-6Sectors of the RMBS Market(continued)q Agency CMOs and stripped CMOs are created from mortgage pass-through securities.H

10、ence, agency CMOs and agency stripped MBS are routinely referred to as derivative MBS products.q While Exhibit 11-1 (see Overhead 11-7) provides a summary of the RMBS market, in recent years, there have been issuances of agency MBS where the loan pool consists of subprime loans.Copyright 2010 Pearso

11、n Education, Inc. Publishing as Prentice Hall11-7Exhibit 11-1 Breakdown of Residential Mortgage Loan Market and the Sectors of the RMBS MarketResidentialMortgageLoanAgency MBSPrime Mortgage LoanSubprime Mortgage LoanConforming LoansPrivate Label MBS“Prime Deals”“Residential Deals”RMBSNonconforming L

12、oansa.Residential Mortgage Loan MarketNonconforming LoansNonagency MBSSubprime MBS“Mortgage-RelatedAsset-Backed Securities”b. Sectors of the RMBS MarketCopyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-8General Description of an Agency Mortgage Pass-Through SecurityqA mortgage pas

13、s-through security, or simply pass-through security, is a type of MBS created by pooling mortgage loans and issuing certificates entitling the investor to receive a pro rata share in the cash flows of the specific pool of mortgage loans that serves as the collateral for the security.qBecause there i

14、s only one class of bondholders, these securities are sometimes referred to as single-class MBS.Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-9General Description of an Agency Mortgage Pass-Through Security (continued)q When a pass-through security is first issued, the princip

15、al is known.q Over time, because of regularly scheduled principal payments and prepayments, the amount of the pools outstanding loan balance declines.q The pool factor is the percentage of the original principal that is still outstanding.q At issuance, the pool factor is 1 and declines over time.q P

16、ool factor information is published monthly.Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-10General Description of an Agency Mortgage Pass-Through Security (continued)q Payments of a pass-through security are made each month.However, neither the amount nor the timing of the ca

17、sh flow from the loan pool is identical to that of the cash flow passed through to investors.The monthly cash flow for a pass-through security is less than the monthly cash flow of the loan pool by an amount equal to servicing and other fees.Because of prepayments, the cash flow of a pass-through is

18、 also not known with certainty.q Not all of the mortgages that are included in the loan pool that are securitized need to have the same note rate and the same maturity.Consequently, when describing a pass-through security, the weighted-average coupon rate and a weighted-average maturity are determin

19、ed.Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-11General Description of an Agency Mortgage Pass-Through Security (continued)q A weighted-average coupon rate (WAC) is found by weighting the note rate of each mortgage loan in the pool by the amount of the mortgage outstanding.

20、q A weighted-average maturity (WAM) is found by weighting the remaining number of months to maturity for each mortgage loan in the pool by the amount of the mortgage outstanding.q After origination of the MBS, the WAM of a pool changes. Fannie Mae and Freddie Mac report the remaining number of month

21、s to maturity for a loan pool, which they refer to as weighted average remaining maturity (WARM).q Both Fannie Mae and Freddie Mac also report the weighted average of the number of months since the origination of the security for the loans in the pool.This measure is called the weighted average loan

22、 age (WALA).Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-12Issuers of Agency Pass-Through Securitiesq Agency pass-through securities are issued byi. Governmental National Mortgage Association (Ginnie Mae)ii. Federal National Mortgage Association (Fannie Mae)iii. Federal Home

23、Loan Mortgage Corporation (Freddie Mac)q The pass-through securities that they issue are referred to as:i. Ginnie Mae Mortgage-Backed Securities (MBS)ii. Fannie Mae Guaranteed Mortgage Pass-Through Certifications (MBS)iii. Freddie Mac Mortgage Participation Certificates (PC)q Do not be confused by t

24、he generic term “MBS” and the pass-through certificates that Ginnie Mae and Fannie Mae have elected to refer to as MBS.Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-13Issuers of Agency Pass-Through Securities (continued)q Ginnie MaeGinnie Mae is a federally related institution

25、 because it is part of the Department of Housing and Urban Development.As a result, the pass-through securities that it guarantees carry the full faith and credit of the U.S. government with respect to timely payment of both interest and principal.It is not technically correct to say that Ginnie Mae

26、 is an issuer of pass-through securities.Ginnie Mae provides the guarantee, but it is not the issuer.Pass-through securities that carry its guarantee and bear its name are issued by lenders it approves, such as thrifts, commercial banks, and mortgage bankers.Thus, these approved entities are referre

27、d to as the “issuers.”Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-14Issuers of Agency Pass-Through Securities (continued)q Ginnie MaeqIt provides the guarantee, it is not the issuer.qPass-through securities that carry its guarantee and bear its name are issued by lenders it

28、approves, such as thrifts, commercial banks, and mortgage bankers. qPass-through securities that carry its guarantee carry the full faith and credit of the U.S. government.Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-15Issuers of Agency Pass-Through Securities (continued)Summ

29、ary of the Differences between Ginnie Mae ProgramsAll mortgages in the pool must have the same note rate.The note rates for the mortgages in the pool may vary.Ginnie Mae I ProgramGinnie Mae II ProgramThere is a single issuer who forms the pool.Some of the securities issued may have an adjustable int

30、erest rate.There may be a single issuer or multiple issuers.The securities issued must have a fixed interest rate.Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-16Issuers of Agency Pass-Through Securities (continued)q Fannie Mae and Freddie MacAlthough the MBS issued by Fannie

31、Mae and Freddie Mac are commonly referred to as “agency MBS,” both are in fact shareholder-owned corporations chartered by Congress to fulfill a public mission.Their stocks trade on the New York Stock Exchange.The mission of these two GSEs is to support the liquidity and stability of the mortgage ma

32、rket.They accomplish this byi.buying and selling mortgagesii.creating pass-through securities and guaranteeing themiii. buying MBSCopyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-17Issuers of Agency Pass-Through Securities (continued)q Fannie Mae and Freddie MacHowever, the MBS t

33、hat they issue are not guaranteed by the full faith and credit of the U.S. government.Rather, the payments to investors in MBS are secured first by the cash flow from the underlying pool of loans and then by a corporate guarantee.Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-1

34、8Prepayment Conventions and Cash FlowqTo value a pass-through security, it is necessary to project its cash flow.qThe difficulty is that the cash flow is unknown because of prepayments.qThe only way to project a cash flow is to make some assumption about the prepayment rate over the life of the unde

35、rlying mortgage pool.The prepayment rate assumed is called the prepayment speed or, simply, speed.The yield calculated based on the projected cash flow is called a cash flow yield.Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-19Prepayment Conventions and Cash Flow (continued)q

36、Estimating the cash flow from a pass-through requires making an assumption about future prepayments.qSeveral conventions have been used as a benchmark for prepayment rates:i.Federal Housing Administration (FHA) experienceii.the conditional prepayment rateiii. the Public Securities Association (PSA)

37、prepayment benchmarkThe first convention is no longer used.Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-20Prepayment Conventions and Cash Flow (continued)q Conditional Prepayment RateIt is the fraction of the remaining principal in the pool is prepaid each month for the remai

38、ning term of the mortgage based on the characteristics of the pool and the current and expected future economic environment.Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-21Prepayment Conventions and Cash Flow (continued)qConditional Prepayment RateThe CPR is an annual prepayme

39、nt rate.To estimate monthly prepayments, the CPR must be converted into a monthly prepayment rate, commonly referred to as the single-monthly mortality rate (SMM).A formula can be used to determine the SMM for a given CPR:SMM = 1 (1 CPR)1/12Copyright 2010 Pearson Education, Inc. Publishing as Prenti

40、ce Hall11-22Prepayment Conventions and Cash Flow (continued)qSMM Rate and Monthly PrepaymentAn SMM of w% means that approximately w% of the remaining mortgage balance at the beginning of the month, less the scheduled principal payment, will prepay that month.That is, prepayment for month t =SMM (beg

41、inning mortgage balance for montht scheduled principal payment for montht)EXAMPLE. Suppose that an investor owns a pass-through in which the remaining mortgage balance at the beginning of some month is $290 million. Assuming that the SMM is 0.5143% and the scheduled principal payment is $3 million,

42、the estimated prepayment for the month is0.005143($290,000,000 $3,000,000) = $1,476,041Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-23Prepayment Conventions and Cash Flow (continued)qSingle-Monthly Mortality RateSMM Example. Suppose that the CPR used to estimate prepayments i

43、s 6%. The corresponding SMM is what?Using our formula to determine the SMM for a given CPR, we get:SMM = 1 (1 CPR)1/12 = 1 (1 0.06)1/12 SMM = 1 (0.94)0.08333 = 0.005143Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-24Prepayment Conventions and Cash Flow (continued)q PSA Prepaym

44、ent BenchmarkThe Public Securities Association (PSA) prepayment benchmark assumes that prepayment rates are low for newly originated mortgages and then will speed up with seasoningCopyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-25Exhibit 11-6 Graphic Depiction of 100 PSAMortgage

45、 Age (Months)100% PSAAnnual CPR Percentage6300Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-26Prepayment Conventions and Cash Flow (continued)q PSA Prepayment BenchmarkMathematically, 100 PSA can be expressed as follows:If t 30: CPR = 6% (t/30)If t 30: CPR = 6%where t is the n

46、umber of months since the mortgage originated.Slower or faster speeds are then referred to as some percentage of PSA.For example, 150 PSA means 1.5 times the CPR of the PSA benchmark prepayment rate.A prepayment rate of 0 PSA means that no prepayments are assumed.The CPR is converted to an SMM using

47、 SMM = 1 (1 CPR)1/12Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-27Prepayment Conventions and Cash Flow (continued)q Beware of ConventionThe PSA prepayment benchmark is simply a market convention.It is the product of a study by the PSA based on FHA prepayment experience.Data

48、that the PSA committee examined seemed to suggest that mortgages became seasoned (i.e., prepayment rates tended to level off) after 30 months and the CPR tended to be 6%.Astute money managers recognize that the CPR is a shorthand enabling market participants to quote yield and/or price, but as a con

49、vention in deciding value it has many limitations.Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall11-28qMonthly cash flow for a $400 million 7.5% pass-through rate with a WAC of 8.125% and a WAM of 357 Months (Assuming 100 PSA) (Page 256)Copyright 2010 Pearson Education, Inc. Publi

50、shing as Prentice Hall11-29Factors Affecting Prepayments and Prepayment ModelingqA prepayment model is a statistical model used to forecast prepayments.Modelers have developed different prepayment models for agency and nonagency mortgage-backed securities.qMuch less borrower and loan data are provid