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

What are the Objectives or goals of Financial Management? Objectives of Financial Management: - It is the responsibility of the top management to lay down the objectives or goa

A Video Rental store has two employees. The Supervisor is paid $2,200 per month. The other employee, Mark is paid $1,200 per month. In addition, Mark is paid a commission of 20 cen

Explain how to compute the overall balance and discuss its significance. The overall BOP is defined by computing the cumulative balance of payments involving the current account,

DISCOUNTING TECHNIQUE is also called present value technique. It is the process of calculating the present value of cash flows.  Discounting is determining the present value of a

A fixed income security investor can expect to receive a rupee returns from the following sources: (a) Interest payment, (b) Capital gain or loss at maturity or when so

Why auditors need to attain audit evidence When significant fluctuations/unexpected relationshipsare identified which are inconsistent with  other  relevant  information  or  t

What is meant by the terms that an option is in-, at-, or out-of-the-money? Answer:  A call or put option with S t > E (E > S t ) is considered to as trading in-the-money.  If


You work for a small, for-profit health system. Your system is interested in acquiring a Critical Access Hospital (CAH) at a price of $65,000,000. The purchase would be made from r