# Chapter 10 - 1 2 3 4 5 6 7 1 2 Chapter 10 Mortgage-Backed...

This preview shows pages 1–2. Sign up to view the full content.

1 Chapter 10 – Mortgage-Backed Securities 1. A mortgage is a loan that is collateralized with a specific piece of real property, residential or commercial. 2. Cash flow characteristic of a fixed rate, level payment, fully amortized loan 3. Concept of prepayments and how they result in prepayment risk 4. Investment characteristics of a mortgage pass-through security – concept of pooling several mortgages to create a “pool” and selling it to investors. Securitization is done by GNMA, FNMA and FHLMC 5. Importance of prepayments in estimating cash flow of a mortgage security 6. Compare and contrast the CPR (Constant prepayment rate) to the PSA (Public Securities Association). CPR – is the annual rate ex. 12 CPR or 12% per annum of the outstanding is paid off or 1% monthly. A monthly rate is computed by the formula: SMM = 1 – (1-CPR) ^ (1/12) 7. Mathematically, 100 PSA can be expressed as follows: 1. If t, is the number of months since the mortgage was originated, 2. It t< 30 then CPR = 6% (t/30) and if t>= 30 then CPR=6%

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 11/06/2010 for the course ECON Econ taught by Professor Liasa during the Spring '10 term at University of San Francisco.

### Page1 / 3

Chapter 10 - 1 2 3 4 5 6 7 1 2 Chapter 10 Mortgage-Backed...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online