HOFIS 31 - Nonagency Residential MBS Flashcards
Nonagency RMBS
Residential Mortgage-Backed Securities: Not guaranteed by government-sponsered entities or government agencies
Nonagency RMBS Characteristics
- Collateral: Many small loans
- Term: Longer-Term (15-30 years)
- Rate: Floating
- Prepayment: more frequently
- Transaction structure: varied
- Modeling: Probabilistic modeling on historical datasets
RMBS Prospectus
Offering document that
- describes collateral characteristics and deal structure,
- and discloses the associated transaction parties and investment risks
RMBS Warehouse Lenders
Provide short-term financing to originators allowing a critical mass of loans to be accumulated for a deal.
RMBS Issuers role
package loans and structure into tranches
RMBS Trustees
Administrate deals, release reports, distribute cash flows to investors
RMBS Mortgage Servicers
Collect payments from borrowers and pass onto the trustees
RMBS Conduits
Vertically integrated securitization business
RMBS Vintage
- Refers to the origination year
- Can help determine the level of underwriting standards at the time
- 2002/3 best, 2006/7 worst/most lenient years of underwriting
What are the key measurements of RMBS collateral performance?
- Delinquency – the 2 standards for measuring contractual delinquency status are the Mortgage Bankers Association (MBA) standard and the Office for Thrift Supervision (OTS) standard;
- Default – commonly defined by liquidation (via short sale, foreclosure sale, or REO sale) and the remaining default balance;
- Voluntary prepayments; and
- Loss severity
RMBS Roll Rate
Rate at which previously current or delinquent loans are rolling into another status
RMBS Short Sale
Sale of the underlying proprety in which the sale proceeds falls short of the remaining balance of the loan
RMBS Sequential vs Pro-rate Payments
- Sequential - AAA paid in full, then AA paid in full, etc.
- Pro-rata - payments are made proportional to each tranche’s unpaid principal balance
RMBS Lockout Perior
Subordinate bonds are often locked out of receiving prepayments for a given period of time after deal settlement (e.g. 5 years)
RMBS Triggers (capital structue)
Tests to place limits on the amount and timing of any release of credit support