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
Forms of Liquidity: Definition: Liquidity defines to how quickly and cheaply an asset will be converted into cash. Money (in the form of cash) is the most liquid asset. Assets

Method to Assess the Neurological Status: World Health Organization (WHO) define Stroke as interruption of the blood supply to the brain, the effects of a stroke depend on whi

Inflation in International Markets In 1983, Gultekin tried to find out the relation between stock return and the inflation rates (expected/unexpected). He accomplished this by

A technique for knowing a company's worth that is based on earnings and book value. It is also known as the residual income model, it seems at whether management's decisions cause

Day Traders Day traders are basically the market markers. They create liquidity in the market by frequently buying and selling stocks throughout the day in the hope that the pr

Using an appropriate 'factor model', assess (a) the performance of the management in creating value for shareholders and (b) the extent of the foreign exchange exposure of a FTSE10

what is logical process modelling? what is physical modelling?

1. Why do you think you are asked to perform valuation given an array of discount rates? a. Would it not be more accurate to utilize, for example, CAPM to calculate cost of equi

What is the Modigliani and Miller theory of dividends?  Explain. The Modigliani-Miller theory of dividends states that dividend theory is not relevant.  They state that it is the

A Certificate of Deposit (CD) can be defined as a negotiable promissory note, secure and short-term in nature. CDs are issued at a discount to the face value, the