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
Provide an argument for including or not current liabilities in the cost of capital calculation.

Briefly define the terms proprietorship , partnership , and corporation . A proprietorship is a business possessed by one person. Two or more people who unite together to

What are the Measures of growth Sales or market share Number of products or markets Employees Profit Number of retail stores

Margining System: Indian capital markets have finally acquired an international flavor with the market-wide rolling settlement coming into place on both the premier exchanges (

Definition of cost of capital In analyzing the cost of capital it is presumed that business risk of the firm remains unchanged (i.e., that projects accepted don't affect the va

Disadvantages of IFRS 8 Reconciliations may be time consuming. Less comparable with other organisations, as every entity has a different way of running their business.

Swap-Linked Notes: Interest rate swaps are derivative products which help in transforming the cash flows of existing debt issues. These are not only useful in covering the exis

PEST analysis Political for instance political culture, bureaucracy of regulating competition Economic for instance exchange rates, interest rates, taxation or busines

QUESTION 1 [25 marks] Xelo Ltd, whose current sales consist of fixed operating costs of R140 000 and variable operating costs equal to 22% of sales, has made the following two sale

Explain about the term investment intermediaries. Investment intermediaries: Investment intermediaries contain finance companies, mutual funds and investment banks and se