Cash flows from portfolio of us standard mortgages, Financial Management

The cash flows from a portfolio of US standard mortgages have the characteristic of being uncertain. The cash flows from the mortgage consists of three components, which are outstanding interest on the remaining principal, amortization due on the remaining principal and the principal prepayment which could be done as ordinary prepayment or as payment from an insurer in case of a default by the borrower. (However, in case the mortgage is not guaranteed or insured, then the above said cash flows will reduce due to the losses from default and insolvency).

The mortgage intermediary or the SPV sells these cash flow patterns to the investors. For this, the intermediary issues a liability which copies the cash flow structure or in case it wants to protect the investor from the uncertain cash flows of the mortgage, it needs huge amounts of equity and cash. In reality, the investors' claim includes apart from the cash flows, the insurance payment in case of a default by a borrower on higher-loan-to-value tranche of his mortgage. This results in an immediate and complete repayment of outsainding interest and principal.

A point to be remembered here is, though the pass-through MBS is totally severed from the balance sheet as it is issued by the SPV, it is still serviced by the originator.

Posted Date: 9/8/2012 8:05:49 AM | Location : United States







Related Discussions:- Cash flows from portfolio of us standard mortgages, Assignment Help, Ask Question on Cash flows from portfolio of us standard mortgages, Get Answer, Expert's Help, Cash flows from portfolio of us standard mortgages Discussions

Write discussion on Cash flows from portfolio of us standard mortgages
Your posts are moderated
Related Questions
Divestment of company re-organisations Adisinvestment or divestment is selling part of the business or subsidiary to another third party. Reasons and features for divestme

Q. What is Accelerated Depreciation? Accelerated Depreciation - Method which records greater DEPRECIATION than STRAIGHT-LINE DEPRECIATION in the early years and less depreciati

Q. Show Maximum opportunity cost? If Marton hedges all its awaited dollar income over the next year at US$1.55: £l this will make guaranteed (ignoring other sources of risk) st

1. It is mandatory that every carrier transporting hazardous materials should display correctly the emergency information panel. Emergency information panel should be legibly and

Scenario:  ABC Company sells widgets in three varieties (blue, red, and yellow) but has lost money for the past three years.  Competitive intelligence shows the Company's products

Constructing Index Numbers There are two approaches for constructing an index number namely the aggregates method and average of relatives method. The index constructed in eit

FACTORS INFLUENCING CAPITAL STRUCTURE/DETERMINANTS OF THE CAPITAL STRUCTURE 1. Financial leverage (or) Trading on equity it is the make use of long term fixed interest bea

d iscuss the relationship between finance management,economics,accounting, and mathematics. illustrate/show through a venn diagram

Determine about the risk management systems Management must report to board their review and implementation of internal controls and risk management systems. The board must rev

Determine the term- Time Value of Money If an individual behaves rationally, then he wouldn't equate money in hand today with same value a year from now. As a matter of fact, h