RMBS Flashcards
What are the three factors backed by RMBS?
(1) those backed by a federal agency like (like Ginge Mae) whose assets are fully backed by the full faith and credit of the US government
(2) those guaranteed by either of the two GSEs (like Fannie Mae and Freddie Mac)
(3) those issued by private entities that are not guaranteed by a private entity
What is a mortgage pass through security?
an agency bond. It happens when one or more holders of mortgages from a pool of mortgages and sell shares or participation certificates in the pool.
What is the weighted average coupon rate?
The weighted average coupon (WAC) is the weighted-average gross interest rates of the pool of mortgages that underlie a mortgage-backed security (MBS) at the time the securities were issued. A mortgage-backed security’s current WAC can differ from its original WAC as the underlying mortgages pay down at different speeds.
What is the weighted average maturity?
Weighted average maturity (WAM) is the weighted average amount of time until the maturities on mortgages in a mortgage-backed security (MBS).
What is single month mortality?
measures prepayments in a month
How is SMM calculated?
Prepayment for month/(Beginning mortgage balance for month - scheduled principal repayment for month)
What is the conditional prepayment rate?
annualised version of SMM
What does a CPR of 6% mean?
that approximately 6% of the outstanding of the outstanding mortgage balance at the beginning of the year is expected to be prepaid at the beginning of the year
What is the PSA rate of more than 100?
prepayments are being made faster than expected.
What is the WAL (Weighted average life)?
gives an indication of how long investors can expect before the mortgage gets paid off. A higher PSA means that the average life comes down
What is contraction risk?
is the risk that when interest rates decline, the security will have a shorter maturity than was anticipated at the time of the purchase because home-owners now refinance at now available lower interest rates.
What is the extension risk?
that when the interest rates rise, that fewer prepayments will occur because homeowners are reluctant to give up the benefits of a contractual interest rate
