FIN 683 Financial Institutions Management Selling Loans

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "FIN 683 Financial Institutions Management Selling Loans"

Transcription

1 FIN 683 Financial Institutions Management Selling Loans Professor Robert B.H. Hauswald Kogod School of Business, AU Originate to Distribute New business model financial innovation or financial excess Premise: rende liquid what is illiquid loan sales securitization Changing incentives market failures 2

2 Loan Sale Market May be sold with or without recourse what is the difference? does it matter? Types of loan sales: depends on collateral Domestic Traditional short term HLT loan sales: highly leveraged loans? Syndication as another way of spreading risk 3 Traditional Short Term Key characteristics Secured by assets of borrowing firm Loans to investment grade borrowers or higher Short term Yield closely tied to commercial paper Denominations of $1 million + Importance has declined with emergence of HLT and emerging market loan sales Growth of commercial paper markets ABCP and securitization 4

3 HLT Loan Sales Term loans Usually senior secured Long maturity (often 3- to 6-year maturities) Floating at rates tied to LIBOR, etc. Strong covenant protection Usually distinguished as distressed vs. nondistressed Covenant lite [sic] loans: crazy! 5 Types of Loan Sales Contracts Participations (less than 10%) Limited contractual control Dual risk exposure and monitoring cost Assignments Currently form bulk of the market (90% +) All rights transferred on sale of loan Normally associated with Uniform Commercial Code filing Complexity: legal, accrued interest, rights 6

4 Trends in Loan Sales Loan sales have taken place for over 100 years Correspondent banking: early form of syndication Small banks selling parts of loans to larger banks Participations Expansion of loan sales during 1980s Early 1990s decline followed by expansion Expanding economy and resurgence in M&As Early 2000s, economic slowdown triggered growth in distressed loan sales Effects of the crisis on loan sales and the proportion of distressed loan sales 7 The Buyers Often segmented: there is a buyer for every asset Distressed HLT loan buyers generally investment banks, hedge funds, vulture funds Inter-bank loan sales in traditional market historically due to branching restrictions Foreign banks important buyer of domestic loans Downsizing of assets: Japanese banks Insurance companies, pension funds: long-term loans Mutual funds and nonfinancials: hedge funds vulture investors 8

5 The Sellers Major money center banks, U.S. government, and government agencies Good Bank - Bad Bank: Establishment of subsidiary banks specializing in handling nonperforming loans (NPLs) Increases value of Good Bank Allows structuring of Bad Bank to improve management incentives and operating efficiency Proposed to remove toxic assets in the crisis 9 Other Sellers Foreign banks: spread risk and exposure Japanese banks Investment Banks Merrill Lynch, generally large HLTs Government and agencies (HUD for example) Increased due to Federal Debt Collection Improvements Act, 1996 Largest sales to date, RTC: resolving the S&L crisis in the early 1990s 10

6 Fee income Why? boosts reported earnings under current accounting rules: why? good reason? Credit risk management Reserve requirements without recourse: removed from balance sheet Capital costs meet capital requirements by reducing assets Liquidity risk reduced by loan sales 11 Factors Deterring Future Loan Sales Growth Access to commercial paper market Customer relationship effects customers may take negative view of having their loan sold to another party Legal concerns Fraudulent conveyance Perverse incentives: deteriorating asset quality kills the market 12

7 Factors Encouraging Future Loan Sales Growth BIS capital requirements Market value accounting Asset brokerage and loan trading Government loan sales Credit rating of loans offered for sale Purchase and sale of foreign bank loans Goldman Sachs fund to buy troubled loans from Japan s second largest bank, SMFG 13 Securitization Packaging and selling of loans and other assets backed by securities Many types of loans and assets are being repackaged in this fashion Original use was to enhance the liquidity of the residential mortgage market Separates the risk of assets from lending Perverse incentive effects instrumental in creating the financial crisis 14

8 From Assets to Securities 1. Creation of special purpose vehicle, or SPV, to facilitate the removal of assets from balance sheet 2. Originator earns fees from creation and servicing 3. All cash flows pass through the SPV according to terms of the ABS contract 4. SPV exists until cash flows from the assets are fully distributed: issues various ABS to investors 5. Or: structured investment vehicle, or SIV/SPV, issues commercial paper to purchase bank loans essentially an affiliated asset-backed securities itself 15 Traditional Process Using SPV 16

9 Structured Investment Vehicles SIV responsible for payments on its ABCP even if underlying assets do not generate sufficient cash flows When the cash flows exceed costs, the SIV keeps the spread Usually has lines of credit or loan commitments from sponsoring bank Liquidity risk implications & exposure to runs 17 Traditional Process using SIV 26-18

10 Special Purpose Entities Profitability of SPVs and SIVs hinges on maintaining high credit rating who pays for ratings? who obliges? Prominent role in the financial crisis Misperceptions of the credit risk: subprime market Complexity encouraged regulator reliance on the banks complex models Abdication of responsibility: no skin in the game Perverse incentives: deteriorating asset quality 19 The Pass-Through Security Government National Mortgage Association (GNMA) Sponsors MBS programs and acts as a guarantor Timing insurance FNMA actually creates MBSs by purchasing packages of mortgage loans Fully guarantees the securities 20

11 Federal Home Loan Mortgage Corporation Similar function to FNMA except major role has involved savings institutions Stockholder owned with line of credit from the Treasury In conservatorship with the FHFA Sponsors conventional loan pools as well as FHA/VA mortgage pools 21 Pass-Through SecuritIes Example: Create a mortgage pool from onethousand $100,000 mortgages results in $100 million face value Each mortgage receives credit risk protection from FHA Keeping loans on the book Capital requirement: $4 million Must issue more than $96 million in liabilities due to reserve requirements + FDIC premia Reduces regulatory tax burden 22

12 Gap exposure Further Incentives Illiquidity exposure Default risk by mortgagees FHA/VA bears the default risk Default risk by bank/trustee GNMA responsible for payments to bondholders 23 Present Value of a Mortgage For monthly payments (PMT), the monthly interest rate equals r/m, where r is the APR and m = 12 months For a mortgage with a remaining time to maturity of n years, the present value is calculated as: PMT 1 ( ( )) PV = 1 mn r / m 1+ r / m Recognizable as the product of PMT and PVAF Present value of pass-through: due to servicing fees the present value of the payments to the holder of the pass-through will be less than the present value of the underlying mortgage payments, assuming zero prepayments 24

13 Prepayments result of: Prepayment Refinancing vs. prepayment penalties and points Housing turnover Most GNMA pools allow assumable mortgages Not the case for FNMA or FHLMC pass-throughs Good news effects Lower market yields increase present value of cash flows Principal received sooner Bad news effects Fewer interest payments in total Reinvestment at lower rates 25 Prepayment Models Prepayment affects the cash flows to MBS: pricing models require estimates of the prepayment rates Weighted-average life WAL = [Σ Time Expected Principal received] Total principal outstanding Methods: Public Securities Association (PSA) approach Other empirical approaches Option pricing approach 26

14 PSA Model Assumes 0.2 percent per annum in first month, increasing by 0.2% per month for first 30 months, until annualized prepayment rate equals 6 percent Actual outcomes affected by relative coupon level age of mortgage pool amortization and assumability size of pool conventional/non-conventional location and demographics 27 Other Empirical Models Generally proprietary variants of PSA model Incorporate: Economic variables Burn-out factor variables Idiosyncratic factors 28

15 Option Model Approach Use option pricing theory to figure fair yield spread of pass-throughs over Treasuries Fair price on pass-through, decomposable into two parts: P GNMA = P TBOND - P PREPAYMENT OPTION Option-Adjusted Spread (OAS): lattice (tree) model OAS = spread over UST yield curve needed to equate the PV(cash flows) with the observed price of the security Value of the prepayment option: OAS between GNMAs and T-bonds reflects value of a call option 29 FNMA and FHLMC Concerns Gained too much market share and pose a serious risk to financial system Credit losses and high debt to equity FNMA: excessive interest rate risk exposure overcharging lenders: how would one know? Perception of complete federal backing Freddie Mac misstatement of earnings FNMA $1.1 billion restatement of equity Threat to the financial system during the crisis Would you agree? conflicts of interest: private funding of public policy objectives 30

16 Collateralized Mortgage Obligations CMO structure Prepayment effects differ across tranches (classes) Z-Class CMO R Class Improves marketability of the bonds Slicing and dicing of risks: prepayment credit 31 Innovations in Securitization Pass-through strips IO strips: Negative duration PO strips: prepayments, highly sensitive to interest rate changes Europe: no public mortgage insurance covered bonds: underlying assets remain on the balance sheet better incentives, less risk transfer 32

17 Securitization of Other Assets Securitization of other assets CARDs Various receivables, loans, junk bonds, ARMs Bounds on securitization: Degree of homogeneity of underlying assets Credit quality of underlying assets If difficult to value, costs of securitizing are higher 33 Bounds on Securitization Serious damage to SIVs, the FIs that owned them, and to financial markets from CDOs backed by subprime alt-a CMO tranches Most investors did no analysis Homogeneous assets are better assets for the purpose of securitization Lack of diversification: how could they 34

Financial-Institutions Management. Solutions 6

Financial-Institutions Management. Solutions 6 Solutions 6 Chapter 25: Loan Sales 2. A bank has made a three-year $10 million loan that pays annual interest of 8 percent. The principal is due at the end of the third year. a. The bank is willing to

More information

Mortgages and Mortgage -Backed Securiti curi es ti Mortgage ort gage securitized mortgage- backed securities (MBSs) Primary Pri mary Mortgage Market

Mortgages and Mortgage -Backed Securiti curi es ti Mortgage ort gage securitized mortgage- backed securities (MBSs) Primary Pri mary Mortgage Market Mortgages and Mortgage-Backed Securities Mortgage Markets Mortgages are loans to individuals or businesses to purchase homes, land, or other real property Many mortgages are securitized Many mortgages

More information

Structured Financial Products

Structured Financial Products Structured Products Structured Financial Products Bond products created through the SECURITIZATION Referred to the collection of Mortgage Backed Securities Asset Backed Securities Characteristics Assets

More information

Answers to Chapter 7 Questions

Answers to Chapter 7 Questions Answers to Chapter 7 Questions 1. Mortgage markets are examined separately from bond and stock markets for several reasons. First, mortgages are backed by a specific piece of real property. If the borrower

More information

Mortgage-Backed Securities

Mortgage-Backed Securities Mortgage-Backed Securities PRIMER Introduction to Mortgage-Backed Securities (MBS) and Other Securitized Assets Executive Summary A large and diverse market The US mortgage market, with $7.2 trillion in

More information

Mortgage-backed Securities

Mortgage-backed Securities MÄLARDALEN UNIVERSITY PROJECT DEPARTMENT OF MATHEMATICS AND PHYSICS ANALYTICAL FINANCE, MT 1411 TEACHER: JAN RÖMAN 2004-12-16 Mortgage-backed Securities GROUP : CAROLINA OLSSON REBECCA NYGÅRDS-KERS ABSTRACT

More information

Asset Securitization 1

Asset Securitization 1 Asset Securitization 1 No securitization Mortgage borrowers Bank Investors 2 No securitization Consider a borrower that needs a bank loan to buy a house The bank lends the money in exchange of monthly

More information

Public Policy and Innovation: Partnering with Capital Markets through Securitization. Antonio Baldaque da Silva November 2007

Public Policy and Innovation: Partnering with Capital Markets through Securitization. Antonio Baldaque da Silva November 2007 Public Policy and Innovation: Partnering with Capital Markets through Securitization Antonio Baldaque da Silva November 2007 Agenda 1. Motivation: Innovation and Public Policy 2. Traditional tools 3. Alternatives:

More information

Managing the Investment Portfolio

Managing the Investment Portfolio Managing the Investment Portfolio GSBC Executive Development Institute April 26, 2015 Portfolio Purpose & Objectives Tale of Two Balance Sheets o Components of Core Balance Sheet Originated loans Retail

More information

The Mortgage Market. Concepts and Buzzwords. Readings. Tuckman, chapter 21.

The Mortgage Market. Concepts and Buzzwords. Readings. Tuckman, chapter 21. The Mortgage Market Concepts and Buzzwords The Mortgage Market The Basic Fixed Rate Mortgage Prepayments mortgagor, mortgagee, PTI and LTV ratios, fixed-rate, GPM, ARM, balloon, GNMA, FNMA, FHLMC, Private

More information

Article 2014. Collateralized Loan Obligations. by Rob McDonough Chief Risk Officer, Angel Oak Capital Advisors, LLC

Article 2014. Collateralized Loan Obligations. by Rob McDonough Chief Risk Officer, Angel Oak Capital Advisors, LLC Article 2014 Collateralized Loan Obligations by Rob McDonough Chief Risk Officer, Angel Oak Capital Advisors, LLC Collateralized Loan Obligations Collateralized loan obligations ( CLOs ) are structured

More information

Unit 1 Overview of the Mortgage Markets

Unit 1 Overview of the Mortgage Markets Unit 1 Overview of the Mortgage Markets Introduction The interaction between the primary and secondary mortgage markets is the foundation of the mortgage lending process and is an essential part of our

More information

Commercial paper collateralized by a pool of loans, leases, receivables, or structured credit products. Asset-backed commercial paper (ABCP)

Commercial paper collateralized by a pool of loans, leases, receivables, or structured credit products. Asset-backed commercial paper (ABCP) GLOSSARY Asset-backed commercial paper (ABCP) Asset-backed security (ABS) Asset-backed securities index (ABX) Basel II Call (put) option Carry trade Collateralized debt obligation (CDO) Collateralized

More information

Chapter 10. The Good Old Days. The New Way. Secondary Markets. Depository Lenders in the Primary Market. Nondepository Lenders in the Primary Market

Chapter 10. The Good Old Days. The New Way. Secondary Markets. Depository Lenders in the Primary Market. Nondepository Lenders in the Primary Market The Good Old Days Chapter 10 The Secondary Mortgage Market Banks and Savings and Loans made loans and held these loans in portfolio The interest paid on the loan was use to pay interest to the depositors

More information

Mortgage-Backed Sector of the Bond Market

Mortgage-Backed Sector of the Bond Market 1 Mortgage-Backed Sector of the Bond Market LEARNING OUTCOMES 1. Mortgage Loan: a. cash flow characteristics of a fixed-rate, b. level payment, and c. fully amortized mortgage loan; 2. Mortgage Passthrough

More information

MORTGAGE BACKED SECURITIES

MORTGAGE BACKED SECURITIES MORTGAGE BACKED SECURITIES A Mortgage-Backed Security is created when the issuing Agency purchases a number of investment quality residential home mortgages from various banks, thrifts, or mortgage companies.

More information

Recourse vs. Nonrecourse: Commercial Real Estate Financing Which One is Right for You?

Recourse vs. Nonrecourse: Commercial Real Estate Financing Which One is Right for You? Recourse vs. Nonrecourse: Commercial Real Estate Financing Which One is Right for You? Prepared by Bill White Director of Commercial Real Estate Lending In this white paper 1 Commercial real estate lenders

More information

Mortgage-Related Securities

Mortgage-Related Securities Raymond James Michael West, CFP, WMS Vice President Investments 101 West Camperdown Way Suite 600 Greenville, SC 29601 864-370-2050 x 4544 864-884-3455 michael.west@raymondjames.com www.westwealthmanagement.com

More information

Mortgage-Backed Securities. Mortgage Loans Pass-throughs and Prepayments CMOs Analysis of MBS Pricing and Convexity

Mortgage-Backed Securities. Mortgage Loans Pass-throughs and Prepayments CMOs Analysis of MBS Pricing and Convexity Mortgage-Backed Securities/1 Asset-Backed Securities Mortgage-Backed Securities Prof. Ian Giddy Stern School of Business New York University Mortgages and MBS Mortgage Loans Pass-throughs and Prepayments

More information

Fixed-Income Securities. Solutions 8

Fixed-Income Securities. Solutions 8 FIN 472 Professor Robert Hauswald Fixed-Income Securities Kogod School of Business, AU Solutions 8 1. Determine the one-year and two-year forward swap rates, which reset on 9/13/1999, and start paying

More information

The Financial Risks Associated with Mortgage-Backed Securities

The Financial Risks Associated with Mortgage-Backed Securities The Financial Risks Associated with Mortgage-Backed Securities Global Association for Risk Professionals (GARP) Raleigh, NC Chapter Meeting October 25, 2012 Tao Pang, PhD, FRM Department of Mathematics

More information

Important Information about Investing in Bonds

Important Information about Investing in Bonds Robert W. Baird & Co. Incorporated Important Information about Investing in Bonds Baird has prepared this document to help you understand the characteristics and risks associated with bonds and other fixed

More information

NOTE ON LOAN CAPITAL MARKETS

NOTE ON LOAN CAPITAL MARKETS The structure and use of loan products Most businesses use one or more loan products. A company may have a syndicated loan, backstop, line of credit, standby letter of credit, bridge loan, mortgage, or

More information

An index of credit default swaps referencing 20 bonds collateralized by subprime mortgages.

An index of credit default swaps referencing 20 bonds collateralized by subprime mortgages. ABX Asset-backed commercial paper (ABCP) Asset-backed security (ABS) Assets under management (AUM) Call (put) option Capital-to-risk-weighted assets ratio Carry trade Cash securitization CAT (catastrophe)

More information

Financial Instruments. Chapter 2

Financial Instruments. Chapter 2 Financial Instruments Chapter 2 Major Types of Securities debt money market instruments bonds common stock preferred stock derivative securities 1-2 Markets and Instruments Money Market debt instruments

More information

VII COMMERCIAL PAPER BACKED BY CREDIT CARD RECEIVABLES

VII COMMERCIAL PAPER BACKED BY CREDIT CARD RECEIVABLES VII COMMERCIAL PAPER BACKED BY CREDIT CARD RECEIVABLES INTRODUCTION Asset-backed commercial paper (ABCP) conduits issue short-term notes backed by trade receivables, credit card receivables, or medium-term

More information

US TREASURY SECURITIES - Issued by the U.S. Treasury Department and guaranteed by the full faith and credit of the United States Government.

US TREASURY SECURITIES - Issued by the U.S. Treasury Department and guaranteed by the full faith and credit of the United States Government. Member NASD/SIPC Bond Basics TYPES OF ISSUERS There are essentially five entities that issue bonds: US TREASURY SECURITIES - Issued by the U.S. Treasury Department and guaranteed by the full faith and

More information

The Mortgage Market. Concepts and Buzzwords

The Mortgage Market. Concepts and Buzzwords The Mortgage Market Concepts and Buzzwords Mortgage lending Loan structures Loan quality Securitization Agencies/GSEs MBS The subprime story Readings Veronesi, Chapters 8 and 12 Tuckman, Chapter 21 Gorton,

More information

Commercial paper collateralized by a pool of loans, leases, receivables, or structured credit products.

Commercial paper collateralized by a pool of loans, leases, receivables, or structured credit products. Asset-backed commercial paper (ABCP) Asset-backed security (ABS) Asset-backed securities index (ABX) Auction rate security Basel II Call (put) option Carry trade Commercial paper collateralized by a pool

More information

Chapter 10. Fixed Income Markets. Fixed-Income Securities

Chapter 10. Fixed Income Markets. Fixed-Income Securities Chapter 10 Fixed-Income Securities Bond: Tradable security that promises to make a pre-specified series of payments over time. Straight bond makes fixed coupon and principal payment. Bonds are traded mainly

More information

SHARES NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE. BKLN PowerShares Senior Loan Portfolio

SHARES NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE. BKLN PowerShares Senior Loan Portfolio SHARES NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE PowerShares Senior Loan Portfolio PowerShares Senior Loan Portfolio is the first senior loan exchange-traded fund (ETF) and seeks investment results

More information

GOLDMAN SACHS VARIABLE INSURANCE TRUST

GOLDMAN SACHS VARIABLE INSURANCE TRUST GOLDMAN SACHS VARIABLE INSURANCE TRUST Institutional and Service Shares of the Goldman Sachs Money Market Fund (the Fund ) Supplement dated July 29, 2015 to the Prospectuses and Summary Prospectuses, each

More information

(Table 2.2). General account assets amounted to $3.5 trillion in 2010, up 4 percent from 2009.

(Table 2.2). General account assets amounted to $3.5 trillion in 2010, up 4 percent from 2009. 2ASSETS Assets held by life insurers back the companies life, annuity, and health liabilities. Accumulating these assets via the collection of premiums from policyholders and earnings on investments provides

More information

Mortgage Backed Securities. Masaryk University 2014- Brno, CZ

Mortgage Backed Securities. Masaryk University 2014- Brno, CZ Mortgage Backed Securities Masaryk University 2014- Brno, CZ Authored by: Vukman Manić Supervised by: Luděk Benada 12/6/2014 AGENDA 1. Introduction- Mortgage Backed Securities (MBS) 2. The MBS Market-

More information

American Options and Callable Bonds

American Options and Callable Bonds American Options and Callable Bonds American Options Valuing an American Call on a Coupon Bond Valuing a Callable Bond Concepts and Buzzwords Interest Rate Sensitivity of a Callable Bond exercise policy

More information

Glossary of Common Derivatives Terms

Glossary of Common Derivatives Terms DRAFT: 10/03/07 Glossary of Common Derivatives Terms American Depository Receipts (ADRs). ADRs are receipts issued by a U.S. bank or trust company evidencing its ownership of underlying foreign securities.

More information

Bond Fund of the TIAA-CREF Life Funds

Bond Fund of the TIAA-CREF Life Funds Summary Prospectus MAY 1, 2015 Bond Fund of the TIAA-CREF Life Funds Ticker: TLBDX Before you invest, you may want to review the Fund s prospectus, which contains more information about the Fund and its

More information

Lecture 16: Financial Crisis

Lecture 16: Financial Crisis Lecture 16: Financial Crisis What is a Financial Crisis? A financial crisis occurs when there is a particularly large disruption to information flows in financial markets, with the result that financial

More information

COPYRIGHTED MATERIAL. What do David Bowie, James Brown, the Isley Brothers, and Rod. Introduction CHAPTER 1

COPYRIGHTED MATERIAL. What do David Bowie, James Brown, the Isley Brothers, and Rod. Introduction CHAPTER 1 CHAPTER 1 Introduction What do David Bowie, James Brown, the Isley Brothers, and Rod Stewart have in common? The obvious answer is that they are all recording artists. The financial professional would

More information

Conceptual Framework: What Does the Financial System Do? 1. Financial contracting: Get funds from savers to investors

Conceptual Framework: What Does the Financial System Do? 1. Financial contracting: Get funds from savers to investors Conceptual Framework: What Does the Financial System Do? 1. Financial contracting: Get funds from savers to investors Transactions costs Contracting costs (from asymmetric information) Adverse Selection

More information

APS 120 Funds Management & Securitisation

APS 120 Funds Management & Securitisation Prudential Standard APS 120 Funds Management & Securitisation Objective Principles Overview ADI s Involvement in Funds Management & Securitisation Activities Disclosure Separation Clean Sale Application

More information

Diversify Your Portfolio with Senior Loans

Diversify Your Portfolio with Senior Loans Diversify Your Portfolio with Senior Loans White Paper April 2015 Not FDIC Insured May Lose Value No Bank Guarantee For financial professional or use qualified only. Not institutional for inspection investor

More information

Diversify Your Portfolio with Senior Loans

Diversify Your Portfolio with Senior Loans January 2013 Diversify Your Portfolio with Senior Loans White Paper INVESTMENT MANAGEMENT For financial professional or qualified institutional investor use only. Not for inspection by, distribution or

More information

Residential Mortgage Finance. Early American Mortgages. Early Mortgage Lenders

Residential Mortgage Finance. Early American Mortgages. Early Mortgage Lenders Residential Mortgage Finance Early American Mortgages Mortgages before the Great Depression Generally were interest only (non- amortizing) loans Had Loan to Value Ratios under 50 % Were short term loans

More information

Learning Curve Asset-Backed Commercial Paper Anuk Teasdale October 2004

Learning Curve Asset-Backed Commercial Paper Anuk Teasdale October 2004 Learning Curve Asset-Backed Commercial Paper Anuk Teasdale October 2004 YieldCurve.com 2004 Page 1 Asset-Backed Commercial Paper Introduction The rise in securitisation has led to the growth of short-term

More information

Mortgage loans and mortgage-backed securities

Mortgage loans and mortgage-backed securities Mortgage loans and mortgage-backed securities Mortgages A mortgage loan is a loan secured by the collateral of some specific real estate property which obliges the borrower to make a predetermined series

More information

HMBS Overview. Ginnie Mae s Program to Securitize Government Insured Home Equity Conversion Mortgages

HMBS Overview. Ginnie Mae s Program to Securitize Government Insured Home Equity Conversion Mortgages HMBS Overview Ginnie Mae s Program to Securitize Government Insured Home Equity Conversion Mortgages Table of Contents Tab A: Program Overview Tab B: Home Equity Conversion Mortgage (HECM) Trends Tab C:

More information

FIN 472 Fixed-Income Securities Pass-Through Securities

FIN 472 Fixed-Income Securities Pass-Through Securities FIN 472 Fixed-Income Securities Pass-Through Securities Professor Robert B.H. Hauswald Kogod School of Business, AU Pass-Through Security Original use of securitization result of government-sponsored programs

More information

MONEY MARKET FUND GLOSSARY

MONEY MARKET FUND GLOSSARY MONEY MARKET FUND GLOSSARY 1-day SEC yield: The calculation is similar to the 7-day Yield, only covering a one day time frame. To calculate the 1-day yield, take the net interest income earned by the fund

More information

Mortgage-Backed Securities. Leah DiMartino Matt Houser Brendan LaCerda Kaity McCoy Brian Seremet Justin Sibears

Mortgage-Backed Securities. Leah DiMartino Matt Houser Brendan LaCerda Kaity McCoy Brian Seremet Justin Sibears Mortgage-Backed Securities Leah DiMartino Matt Houser Brendan LaCerda Kaity McCoy Brian Seremet Justin Sibears 1 Introduction Mortgage-backed securities (MBS) are debt obligations that represent claims

More information

A leveraged. The Case for Leveraged Loans. Introduction - What is a Leveraged Loan?

A leveraged. The Case for Leveraged Loans. Introduction - What is a Leveraged Loan? PENN Capital Management The Navy Yard Corporate Center 3 Crescent Drive, Suite 400 Philadelphia, PA 19112 Phone: 215-302-1501 www.penncapital.com For more information: Christian Noyes, Senior Managing

More information

Chapter 45. Primary and Secondary Mortgage Markets INTRODUCTION

Chapter 45. Primary and Secondary Mortgage Markets INTRODUCTION Chapter 45 Primary and Secondary Mortgage Markets INTRODUCTION The primary mortgage market brings prospective borrowers (market demand) together with individuals, agencies and entities that have money

More information

HIGH YIELD FINANCING Middle Market. ELA 45th Annual Convention Palm Desert, CA October 22 24, 2006

HIGH YIELD FINANCING Middle Market. ELA 45th Annual Convention Palm Desert, CA October 22 24, 2006 HIGH YIELD FINANCING Middle Market ELA 45th Annual Convention Palm Desert, CA October 22 24, 2006 Värde Partners, Inc. Founded in 1993 $2.5 billion assets under management Minneapolis and London offices

More information

Taxable Fixed Income. Invesco Floating Rate Fund (AFRAX)

Taxable Fixed Income. Invesco Floating Rate Fund (AFRAX) Taxable Fixed Income Invesco Floating Rate Fund (AFRAX) Senior Secured Loans A unique asset class Floating rate funds, also called senior loan funds, invest in senior secured loans. The loans have very

More information

FIN 683 Financial Institutions Management Bank Risk: An Overview

FIN 683 Financial Institutions Management Bank Risk: An Overview FIN 683 Financial Institutions Management Bank Risk: An Overview Professor Robert B.H. Hauswald Kogod School of Business, AU Life is Risky, It mostly Ends Deadly Overview and short introduction to the

More information

CIO WM Research 22 October 2014

CIO WM Research 22 October 2014 CIO WM Research 22 October 214 US fixed income enefits of investing in mortgage IOs Leslie Falconio, Senior Fixed Income Strategist, US FS leslie.falconio@ubs.com, +1 212 713 8496 James Rhodes, CFA, Fixed

More information

Licensed by the California Department of Corporations as an Investment Advisor

Licensed by the California Department of Corporations as an Investment Advisor Licensed by the California Department of Corporations as an Investment Advisor The Impact of the Alternative Minimum Tax (AMT) on Leverage Benefits My associate Matthias Schoener has pointed out to me

More information

Omgeo Asset Class Coverage

Omgeo Asset Class Coverage Equity Ownership interest in a corporation in the form of common stock or preferred stock. Common Stock American Depositary Receipts (ADR) Global Depositary Receipts (GDR) Exchange Traded Funds (ETF) As

More information

US LOAN SERVICES APRIL 2016 NICK OLDFIELD / TOBY WELLS

US LOAN SERVICES APRIL 2016 NICK OLDFIELD / TOBY WELLS US LOAN SERVICES APRIL 2016 NICK OLDFIELD / TOBY WELLS US Mortgage Servicing Market $10 trillion in New mortgage Business debt outstanding, with more than $1 trillion in new originations each year Corporate

More information

Chapter 13: Residential and Commercial Property Financing

Chapter 13: Residential and Commercial Property Financing Chapter 13 Outline / Page 1 Chapter 13: Residential and Commercial Property Financing Understanding the Mortgage Concept - secured vs. unsecured debt - mortgage pledge of property to secure a debt (See

More information

1. State and explain two reasons why short-maturity loans are safer (meaning lower credit risk) to the lender than long-maturity loans (10 points).

1. State and explain two reasons why short-maturity loans are safer (meaning lower credit risk) to the lender than long-maturity loans (10 points). Boston College, MF 820 Professor Strahan Midterm Exam, Fall 2010 1. State and explain two reasons why short-maturity loans are safer (meaning lower credit risk) to the lender than long-maturity loans (10

More information

RBC Fixed Income Funds Prospectus

RBC Fixed Income Funds Prospectus RBC Fixed Income Funds Prospectus July 29, 2016 RBC Short Duration Fixed Income Fund Class I: RSDIX Class F: RSHFX RBC Ultra-Short Fixed Income Fund Class I: RUSIX Class F: RULFX As with all mutual funds,

More information

JPMorgan Insurance Trust Class 1 Shares

JPMorgan Insurance Trust Class 1 Shares Prospectus JPMorgan Insurance Trust Class 1 Shares May 1, 2016 JPMorgan Insurance Trust Core Bond Portfolio* * The Portfolio does not have an exchange ticker symbol. The Securities and Exchange Commission

More information

Federated Quality Bond Fund II

Federated Quality Bond Fund II Prospectus April 30, 2016 Share Class Primary Federated Quality Bond Fund II A Portfolio of Federated Insurance Series A mutual fund seeking to provide current income by investing in a diversified portfolio

More information

CITIZENS PROPERTY INSURANCE CORPORATION. INVESTMENT POLICY for. Claims Paying Fund (Taxable)

CITIZENS PROPERTY INSURANCE CORPORATION. INVESTMENT POLICY for. Claims Paying Fund (Taxable) CITIZENS PROPERTY INSURANCE CORPORATION INVESTMENT POLICY for Claims Paying Fund (Taxable) INTRODUCTION Citizens is a government entity whose purpose is to provide property and casualty insurance for those

More information

Evergreen INSTITUTIONAL MONEY MARKET FUNDS. Prospectus July 1, 2009

Evergreen INSTITUTIONAL MONEY MARKET FUNDS. Prospectus July 1, 2009 Evergreen INSTITUTIONAL MONEY MARKET FUNDS Prospectus July 1, 2009 Evergreen Institutional 100% Treasury Money Market Fund Evergreen Institutional Money Market Fund Evergreen Institutional Municipal Money

More information

Chapter 3 - Selecting Investments in a Global Market

Chapter 3 - Selecting Investments in a Global Market Chapter 3 - Selecting Investments in a Global Market Questions to be answered: Why should investors have a global perspective regarding their investments? What has happened to the relative size of U.S.

More information

Special Purpose Entities (SPEs) and the. Securitization Markets

Special Purpose Entities (SPEs) and the. Securitization Markets Special Purpose Entities (SPEs) and the Securitization Markets Prepared by: The Bond Market Association International Swaps & Derivatives Association Securities Industry Association February 1, 2002 Special

More information

FIN 683 Financial Institutions Management Interest-Rate Risk

FIN 683 Financial Institutions Management Interest-Rate Risk FIN 683 Financial Institutions Management Interest-Rate Risk Professor Robert B.H. Hauswald Kogod School of Business, AU Interest Rate Risk FIs (financial institutions or intermediaries) face two core

More information

investor s guide mortgage-backed securities (MBS) and collateralized mortgage obligations

investor s guide mortgage-backed securities (MBS) and collateralized mortgage obligations investor s guide mortgage-backed securities (MBS) and collateralized mortgage obligations (CMOs) C O N T E N T S Securitization: An Overview 1 Mortgage Securities: An Overview 2 The Building Blocks of

More information

New York University Courant Institute of Mathematical Sciences. Syllabus

New York University Courant Institute of Mathematical Sciences. Syllabus New York University Courant Institute of Mathematical Sciences Syllabus Mathematical Finance Seminar Course: A Practical Approach to Risk Assessment of Mortgage-Backed Securities September 8, 2010 December

More information

Fabozzi Bond Markets and Strategies Sixth Ed. CHAPTER 14 ASSET-BACKED SECURITIES

Fabozzi Bond Markets and Strategies Sixth Ed. CHAPTER 14 ASSET-BACKED SECURITIES Fabozzi Bond Markets and Strategies Sixth Ed. CHAPTER 14 ASSET-BACKED SECURITIES CHAPTER SUMMARY In Chapters 11 and 12 we discussed securities backed by a pool of standard mortgage loans (both residential

More information

Understanding Fixed Income

Understanding Fixed Income Understanding Fixed Income 2014 AMP Capital Investors Limited ABN 59 001 777 591 AFSL 232497 Understanding Fixed Income About fixed income at AMP Capital Our global presence helps us deliver outstanding

More information

Bond Basics. Everything You Need to Know About Bonds

Bond Basics. Everything You Need to Know About Bonds Everything You Need to Know About Bonds The bond market is by far the largest securities market in the world 1, providing investors with virtually limitless investment options. Many investors are familiar

More information

TD ASSET MANAGEMENT USA FUNDS INC. TDAM U.S. Equity Shareholder Yield Fund. TDAM U.S. Large Cap Core Equity Fund

TD ASSET MANAGEMENT USA FUNDS INC. TDAM U.S. Equity Shareholder Yield Fund. TDAM U.S. Large Cap Core Equity Fund TD ASSET MANAGEMENT USA FUNDS INC. TDAM U.S. Equity Shareholder Yield Fund TDAM U.S. Large Cap Core Equity Fund TDAM Global Equity Shareholder Yield Fund TDAM Global All Cap Fund TDAM U.S. Small-Mid Cap

More information

ANALYSIS OF FIXED INCOME SECURITIES

ANALYSIS OF FIXED INCOME SECURITIES ANALYSIS OF FIXED INCOME SECURITIES Valuation of Fixed Income Securities Page 1 VALUATION Valuation is the process of determining the fair value of a financial asset. The fair value of an asset is its

More information

U.S. Credit Risk Retention Rules

U.S. Credit Risk Retention Rules U.S. Credit Risk Retention Rules la-1273837 January 8, 2015 Presented By: Melissa D. Beck Kenneth E. Kohler Jerry R. Marlatt 2014 Morrison & Foerster LLP All Rights Reserved mofo.com Summary of Presentation

More information

Sankaty Advisors, LLC

Sankaty Advisors, LLC Leveraged Loans: A Primer December 2012 In today s market environment of low rates and slow growth, we believe that leveraged loans offer a unique diversification option for fixed income portfolios due

More information

FIN 684 Fixed-Income Analysis From Repos to Monetary Policy. Funding Positions

FIN 684 Fixed-Income Analysis From Repos to Monetary Policy. Funding Positions FIN 684 Fixed-Income Analysis From Repos to Monetary Policy Professor Robert B.H. Hauswald Kogod School of Business, AU Funding Positions Short-term funding: repos and money markets funding trading positions

More information

6/18/2015. Sources of Funds for Residential Mortgages

6/18/2015. Sources of Funds for Residential Mortgages Sources of Funds for Residential Mortgages McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. 11-2 11-3 11-4 Formerly backbone of home mortgage finance Dominated mortgage

More information

Ginnie Mae and the Secondary Mortgage Market: an Integral Part of the American Economic Engine

Ginnie Mae and the Secondary Mortgage Market: an Integral Part of the American Economic Engine Ginnie Mae and the Secondary Mortgage Market: an Integral Part of the American Economic Engine Frank J. Fabozzi, Ph.D., CFA Adjunct Professor of Finance School of Management Yale University Government

More information

Long duration bond benchmarks for corporate pension plans

Long duration bond benchmarks for corporate pension plans By: Yoshie Phillips, CFA, Senior Research Analyst OCTOBER 2011 Long duration bond benchmarks for corporate pension plans Issue: With the growth of liability-driven investing (LDI), many corporate pension

More information

Mortgage Pools, Pass-Throughs, and CMOs

Mortgage Pools, Pass-Throughs, and CMOs Mortgage Pools, Pass-Throughs, and CMOs Concepts and Buzzwords Fixed-Rate Mortgages Prepayment Risks Valuation of Mortgage Pools (Pass-Throughs) CMOs Interest Rate Sensitivity market risk, idiosyncratic

More information

JPMorgan Funds statistics report: Mortgage-Backed Securities Fund

JPMorgan Funds statistics report: Mortgage-Backed Securities Fund NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE JPMorgan s statistics report: Mortgage-Backed Securities Must be preceded or accompanied by a prospectus. jpmorganfunds.com Table of contents PERFORMANCE

More information

Assumable mortgage: A mortgage that can be transferred from a seller to a buyer. The buyer then takes over payment of an existing loan.

Assumable mortgage: A mortgage that can be transferred from a seller to a buyer. The buyer then takes over payment of an existing loan. MORTGAGE GLOSSARY Adjustable Rate Mortgage (ARM): A mortgage loan with payments usually lower than a fixed rate initially, but is subject to changes in interest rates. There are a variety of ARMs that

More information

EDUCATIONAL NOTE ASSET AND MORTGAGE-BACKED SECURITIES CHAPTER 5 COMMITTEE ON INVESTMENT PRACTICE MARCH 1996. Cette note est disponible en français

EDUCATIONAL NOTE ASSET AND MORTGAGE-BACKED SECURITIES CHAPTER 5 COMMITTEE ON INVESTMENT PRACTICE MARCH 1996. Cette note est disponible en français EDUCATIONAL NOTE ASSET AND MORTGAGE-BACKED SECURITIES CHAPTER 5 COMMITTEE ON INVESTMENT PRACTICE MARCH 1996 Cette note est disponible en français Canadian Institute of Actuaries 59 Institut Canadien des

More information

FIXED INCOME. Consistent Revenue A WIDER VIEW TM

FIXED INCOME. Consistent Revenue A WIDER VIEW TM FIXED INCOME Consistent Revenue A WIDER VIEW TM It s time for A WIDER VIEW. TM It s the view that says stocks, bonds, mutual funds, annuities, life insurance, every type of investment has to make a contribution

More information

Diane Delelis 21.10.2011. Securitization. Finance (Basics) Luděk Benada

Diane Delelis 21.10.2011. Securitization. Finance (Basics) Luděk Benada Diane Delelis 21.10.2011 Securitization Finance (Basics) Luděk Benada Index Introduction... 3 I. Detailed presentation...3 II. Vocabulary of securitization...4 III. An example...5 IV. Advantages...6 1.

More information

Seix Total Return Bond Fund

Seix Total Return Bond Fund Summary Prospectus Seix Total Return Bond Fund AUGUST 1, 2015 (AS REVISED FEBRUARY 1, 2016) Class / Ticker Symbol A / CBPSX R / SCBLX I / SAMFX IS / SAMZX Before you invest, you may want to review the

More information

High-Yield Spread U.S. 10-Year Treasury Yield Investment Grade Spread

High-Yield Spread U.S. 10-Year Treasury Yield Investment Grade Spread WisdomTree ETFs BOFA MERRILL LYNCH HIGH YIELD BOND ZERO DURATION FUND HYZD The U.S. high-yield bond market has been one of the best-performing subsets of the fixed income investable universe over the past

More information

An Alternative Way to Diversify an Income Strategy

An Alternative Way to Diversify an Income Strategy Senior Secured Loans An Alternative Way to Diversify an Income Strategy Alternative Thinking Series There is no shortage of uncertainty and risk facing today s investor. From high unemployment and depressed

More information

Asset Securitisation in Australia 1

Asset Securitisation in Australia 1 Asset Securitisation in Australia 1 1 8 6 4 2 Graph 1 Australian Securitisation Vehicles Selected assets and liabilities $b Assets Liabilities $b Non-residential mortgages Other loans 1995 1998 21 24 Sources:

More information

Rethinking Fixed Income:

Rethinking Fixed Income: Rethinking Fixed Income: The Importance of Income and Flexibility January 2011 Executive Summary Over the past 30 years, fixed-income investors have benefited from one of the largest secular trends in

More information

The Fund s investment objective is to seek to provide a level of current income consistent with limited price volatility.

The Fund s investment objective is to seek to provide a level of current income consistent with limited price volatility. SUMMARY PROSPECTUS June 30, 2016 DoubleLine Ultra Short Bond Fund DoubleLine F U N D S Share Class (Ticker): Class I (DBULX) Class N (DLUSX) Before you invest, you may wish to review the Fund s Prospectus,

More information

A Mortgage Product Primer. Mortgage Strategies Goldman, Sachs & Co. Fall 2004

A Mortgage Product Primer. Mortgage Strategies Goldman, Sachs & Co. Fall 2004 A Mortgage Product Primer Mortgage Strategies Goldman, Sachs & Co. Fall 2004 1 Table of Contents I. Mortgage Overview II. III. IV. Mortgage-Backed Security (MBS) Overview Agency vs. Non-Agency MBS MBS

More information

An Attractive Income Option for a Strategic Allocation

An Attractive Income Option for a Strategic Allocation An Attractive Income Option for a Strategic Allocation Voya Senior Loans Suite A strategic allocation provides potential for high and relatively steady income through most credit and rate cycles Improves

More information

Mortgage and Asset Backed Securities Investment Strategy

Mortgage and Asset Backed Securities Investment Strategy Mortgage and Asset Backed Securities Investment Strategy Traditional fixed income has enjoyed an environment of falling interest rates over the past 30 years. Average of 10 & 30 Year Treasury Yields (1981

More information

Lecture Notes on MONEY, BANKING, AND FINANCIAL MARKETS. Peter N. Ireland Department of Economics Boston College. irelandp@bc.edu

Lecture Notes on MONEY, BANKING, AND FINANCIAL MARKETS. Peter N. Ireland Department of Economics Boston College. irelandp@bc.edu Lecture Notes on MONEY, BANKING, AND FINANCIAL MARKETS Peter N. Ireland Department of Economics Boston College irelandp@bc.edu http://www2.bc.edu/~irelandp/ec261.html Chapter 2: An Overview of the Financial

More information

Commercial Mortgage Securities Association (CMSA) July 2007

Commercial Mortgage Securities Association (CMSA) July 2007 Commercial Mortgage Securities Association (CMSA) July 2007 THE COMMERCIAL MORTGAGE-BACKED SECURITIES INDUSTRY FACTUAL BACKGROUND: Commercial Mortgage-Backed Securities (CMBS) Commercial mortgage-backed

More information