Securitization structure of mortgage backed securities, Financial Management

A mortgage, is sold to the SPV at the discretion of the bank to securitize it into a mortgage backed security, that is, the mortgage is said to have passed to the SPV which is usually a third party. The mortgage bank continues to service the mortgage on behalf of the SPV so that the client contact need not be passed on. In return for his service, he receives a fee from the SPV. The SPV issues MBS which are usually structured in various tranches to investors. These tranches may be AAA rated senior debt that is 95% of pool value, a junior debt which is again divided into one or more tranches rated AA, A and so on which is 5% of pool value and a reserve account usually guaranteed by the originator (mortgage bank) and this is less than 1% of pool value. The MBS is divided into different tranches to increase the credit risk of senior debt so that lower yield can be paid on the MBS.

An investor of an MBS gets the right not only to the cash flows but also to the collateral associated to the cash flows. However, the sale of collateral is only a supplementary measure.  Once the servicer or originator receives cash flows (interest and a mortization as per the contract) from the mortgagor, he transfers these cash flows to the trustee who then pays the investors coupon rate and principal.

Posted Date: 9/8/2012 8:05:18 AM | Location : United States







Related Discussions:- Securitization structure of mortgage backed securities, Assignment Help, Ask Question on Securitization structure of mortgage backed securities, Get Answer, Expert's Help, Securitization structure of mortgage backed securities Discussions

Write discussion on Securitization structure of mortgage backed securities
Your posts are moderated
Related Questions
Brown has been in business for some years and has kept her drawings slightly below the level of profits each year. You are her accountant, and she has passed you the following list

application of the operating cycle to a vegetable company

Identify and explain the key stages in the capital investment decision-making process and the role of investment appraisal in this process.

A firm has $700 in inventory, $600 in fixed assets, $600 in accounts receivables, $800 in accounts payable, and $50 in cash. What is the amount of the present assets?

Q ualification criteria We discussed how to prepare the bid documents. Let us now see what criteria should be considered to qualify a bidder. You will have to open bidding

Bond Indenture An indenture builds the formal conditions of a lending relationship between a borrower and a lender. It is a written record, and it outlines most important func

List the arguments (variables) of which a FX call or put option model price is a function.  How does the call and put premium change with respect to a change in the arguments?

Imagine you have been allocated $100,000 which is to be invested in 8 companies listed on the Australian Stock Exchange (ASX). You are required to have a balanced portfolio betwee

Enumerate about the Turnkey operations An illustration of a turnkey business would be a franchise for example immediate brand, systems and product with exclusive territory. A t

Many practitioners feel that instead of using only on-the-run issues, all treasury coupon securities and bills are to be used for constructing the theoretical spo