Securitization structure of mortgage backed securities, Financial Management

Assignment Help:

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.


Related Discussions:- Securitization structure of mortgage backed securities

Define the term corporate and financial relations, Question: (a) Define...

Question: (a) Define the term "corporate and financial relations" and clearly state its components. (b) By using one example, identify the steps required to establishing cor

Define defined benefit and defined contribution pension plan, Compare and c...

Compare and contrast a defined benefit and a defined contribution pension plan. In a defined benefit plan, retirement benefits are defined by a formula that generally considers t

Dividend policy, the managing directors of three profitable listed companie...

the managing directors of three profitable listed companies discussed their company''''s dividend policies. company A has deliberately paid no dividends for the past five years. co

Methods of workers participation in management, Methods of workers particip...

Methods of workers participation in management: the various methods of workers participation in management are as follows: 1. Informative participation: it refers to sharing of

Explain term lenders, Lenders Lenders are concerned to receive payment ...

Lenders Lenders are concerned to receive payment of interest and ultimate re-payment of capital. They don't share in the upside of very successful organisational strategies as

Assessing creditworthiness of an issuer of bond, Following are the areas an...

Following are the areas an analyst should consider while assessing the creditworthiness of an issuer. 1. Security Limitations: The bond indenture shoul

APR and EAR, Assume a bank charges a 15.5% APR (annual percentage rate) on ...

Assume a bank charges a 15.5% APR (annual percentage rate) on credit card holder compounds quarterly. What EAR (effective annual rate) is the bank is charging? What if they change

Use of beta to partition risk, Use of Beta to Partition Risk The total ...

Use of Beta to Partition Risk The total risk or variability in earnings can be attributed to two classes of factors: Marketwide factors which create variability in all

Microsoft''s Partenership Strategies, I have a presentation to give on ''Ne...

I have a presentation to give on ''New ways'' Microsoft can improve its ''Partnership Strategies''. Can some one please give some good links or insights into the same.

Determine the rate for computer-based central office switch, SWBT Company m...

SWBT Company must decide whether to repair a telephone company computer-based central office switch or purchase a new one. The existing switch originally cost $750,000 and is fully

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd