securitazation Flashcards
hard bullet covered bond
payment must be on a specific date
issuer must sell loans to fulfill payment when default
soft bullet bond
payment can be changed when loan default
overcollaterazation
100 m loan value is 95 mln bond and 5 mln of equity of SPE.
excess spread
interest is higher than coupon (SPE)
subordination
bonds are in tranches. waterfall bonds. pricnipal is payed in the line of seniority
CDO
collaterized debt obligations
asset backed security which is backed by a pool of other asset backed security. the payment for investors can be made by p+i or selling bonds on premium
CLO
collaterized loan obligations - a part of CDO backed by loans or loand cdo
Cash flow CLO
most common - cash flows for investors from hold and wait stategy
market value CLO
returns are made by buying and selling stock
MBS prepayement risk
mortgage cfs are uncertain
1. contraction risk - interest rates drop people pay the whole mortgage from refinancing for a lower yield (like callable bonds)
- extension risk - rates go up, less prepayement higher maturity of mbs and higher duartion
LTV - loan to value
borrowed funds/property value
the lower the less credit risk
decreases over time
DTI -debt to income
the whole debt/monthly gross pre tax income
the lower the better
prime mortgages
high credit quality, low dti low ltv, first lien mortgage
subprime mortgages
lower credit quality, high dti or ltv, may be second lien
recourse
lender can make a claim for borrower in default when hoke value is not enough to fulfuill credit