MBS: A Brief History
RES 3400
Week 2, part 1
What is securitization?
Securitization is the process of taking an
illiquid asset, or group of assets, and through
financial engineering, transforming them into
a security.
A typical example of securitization

Secondary Mortgage Market
Mortgage Pay-Through Bonds
Bond, not an equity ownership interest
Debt obligation of issuer
Pass-through of interest and principal
Credit rating derives from three things
Riskiness of mortgages
Extent of over collateraliza

Baruch College
RES 3400
Real Estate Capital Markets
Fall 2016
Instructor:
Classroom:
Class time:
Email:
Office:
Hours:
Class Website:
Professor Mingming Qiu Ph.D.
Vert 9-150
Tuesday and Thursday, 10:45am-12:00 pm
mingming.qiu@baruch.cuny.edu
Real Estate D

Secondary Mortgage Market
Allows originators to replenish funds
Facilitates geographic flow of funds
Provides an investment option for savers
Early buyers of mortgages
Mortgage companies and thrifts
FHA insurance and VA guarantees
Minimum underwriting

$50,000 is due 20 years from today. The borrower wants to make semi-annual payments into a fund that
will earn compound interest at an annual rate of 5%, compounding monthly. What will the semi-annual
payments have to be?
I=(1+5%/12)^6-1
Pv=0
Fv=50,000
N=

MORTGAGE POOL
Amount
Interest rate
Term
Annual Payment
$75,000
11.00%
10
$12,735.11
years
Prepayment rate
0.00%
LOAN SCHEDULE FOR MORTGAGE POOL
Year
Beg. Bal
Payment
Interest
Principal
End Bal
1
2
3
Prepayment
0.00
0.00
0.00
4
60,010.32
$12,735.11
5
53,87

RES 3400 Quiz 1 0 Last Name: First Name:
J J
You will get full credit by calculating a right numberI showing the steps to get that number AND following instructions
for each problem. Total points are 10 points.
Problem 1: (3 points)
$50,000 is due 20 year

Mortgage Pass Through Security
Data Input Box:
Number of mortgages in initial pool
Average mortgage balance
Initial mortgage pool balance
Prepayment rate
Mortgage rate
Servicing and Guarantee Fee
Coupon rate
Market interest rate
500.0000
275000.0000
#
0.1

Mortgage Pass Through Security
Data Input Box:
Number of mortgages in initial pool
Average mortgage balance
Initial mortgage pool balance
Prepayment rate
Mortgage rate
Servicing and Guarantee Fee
Coupon rate
Market interest rate
100
$250,000
$25,000,000
1

Mortgage Pass Through Security
Data Input Box:
Number of mortgages in initial pool
Average mortgage balance
Initial mortgage pool balance
Prepayment rate
Mortgage rate
Servicing and Guarantee Fee
Coupon rate
Market interest rate
500.0000
275000.0000
#
0.1

'
*rorooot,o,"rt
LastName:
FirstName:
Youwill set full credit bvcalculating arisht number. showingthesteps to set thatnumber ANDfollowinq instructions
for eachproblem. Total points are25ooints.
Problem1:(4points)
PleasewritedoWn the formula forthe present

RES 3400 [7
9/21/2015 7
MPT- More Practice
Number of mortgages in initial pool
Average mortgage balance
Initial mortgage pool balance
Prepayment rate
Mortgage rate
Servicing and Guarantee Fee
75 Slar-h'na Paol Bar lance
$100,000
$7,500,000
1. Given

RES 3400
3/14/2016
CMOs: Collateralized mortgage obligations. These are bonds that represent specific claims to specific
cash flows from large pools of mortgages. Portions of interest and principal payments received by the
issuer are distributed to differ

Problem Set 5
Solutions
RES 3400
4/5/2016
Question 1
Given a floater/inverse floater tranche with a total principal amount
of $25,000,000, 7% interest, and even allotments to the floater class
and the inverse floater classes what is the maximum interest

Mozilo is a great salesman, and great salesmen are often the ones who get sold, a
former Countrywide executive says.
Countrywide Financial, was founded in 1968 by Angelo Mozilo and David Loeb. By 1992
Countrywide was the biggest originator of single-famil

RES 3400
10/6/16
Next, we will discuss a different payment rule, using the same pool of mortgages. (This corresponds to
the Excel sheet posted on Blackboard)
Now we have the following payment rules:
A CMO is being issued with 3 tranches. The A tranche wil

Problem Set 3
Solutions
RES 3400
10/05/2016
Question 1
Problem 1 Solution
This is just a regular TVM calculate payment question
PV=250,342,967 (starting balance)
FV=0 (fully-amortizing)
N=357 (loans have 357 payments left until maturity)
i/y=4/12 (WA

Problem Set 2
Solutions
RES 3400
9/21/2016
Question 1
In the Freddie Mac new offering (K-F20) of structured pass-through
certificates, what is the WAL of the Class A certificates? (Express your
answer in number of years, rounded to two decimal places if

Sequential Pay MBS
RES 3400
10/5/2016
CMOs vs. MPTs
The major difference between CMOs and the plain mortgage pass through
securities we have discussed up until this point is that the CMO is a security
issued in multiple classes against the same pool of a

Problem Set 1:
Solutions
RES 3400
Fall 2016
Question 1
You would like to borrow $500,000 to buy a home. The bank offers
you a 30 year fully amortizing fixed rate mortgage with a 4% contract
interest rate. What will your monthly payments be? (Round answer

Mortgage PassThroughs
9/13/2016 RES 3400
Week 3B
Pass-through securities
Represent ownership interest in pools of mortgages
Usually single or multifamily residential (more homogeneous assets) but can also
be used in commercial
Principal and interest pa

MBS: A Brief History
RES 3400
9/7/16-Week 2
What is securitization?
Securitization is the process of taking an illiquid
asset, or group of assets, and through financial
engineering, transforming them into a security.
A typical example of securitization

Mortgage Pass Through Security
Data Input Box:
Number of mortgages in initial pool
Average mortgage balance
Initial mortgage pool balance
Prepayment rate
Mortgage rate
Servicing and Guarantee Fee
Coupon rate
Market interest rate
75.0000
100000.0000
750000