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R42: INTRODUCTION TO ASSET-BACKED SECURITIES - Coggle Diagram
R42: INTRODUCTION TO ASSET-BACKED SECURITIES
Structure of Mortgage-Backed Securities
Securitized Assets
:
Pool of assets
(ABS):
• Residential and commercial mortgage loans (MBS)
• Automobile (auto) loans, student loans, bank loans
• Credit card debt
Originator (Owner)
Được paid cash ≈ Move asset to SPE
Special legal entity (SPE)
Using the securitized assets as guarantees to back a bond issue
The SPV is a bankruptcy-remote entity, its obligations remain secure even if the parent company goes bankrupt
Investors
Take the bond (Bond hold by investors is
ABS
)
≈ Funding cash
Explain
Benefits
of ABS
Problems before securitization
Ngân hàng là người cấp vốn cho các khoản vay, investors chỉ tham gia vào hoạt động deposits, debt hoặc equity cho cả port của bank =>
Bank đại diện thêm 1 layer giữa borrowers và investors.
Investors were only able to gain exposure to the bank’s
entire portfolio of assets
; that is, they were unable to
pick and choose
the types of assets they
desired exposure to
. (Không giải quyết được sở thích rủi ro của từng người)
BENEFITS for market
(giảm chi phí)
Cắt bớt layer người trung gian => Chi phí giảm => Return tăng
Tổng số vốn vay tăng lên theo nhu cầu
Lower liquidity risk (Vì tạo ra một thị trường có nhu cầu)
=> Thị trường hiệu quả hơn
Stronger legal claim on the collateral
(Khả năng claim ts thế chấp cao hơn)
BENEFITS for investors
(Nói chung là diversify danh mục)
Offer assets that match their risk, return, and maturity profiles.
Would not be required to originate, monitor, and
collect payments
from the underlying loans
themselves
More types to choose and pick
BENEFITS for security issuers
(Banks, IB)
Originate more loans than themselves
=> Improve profitability
Diversify the product (Other than bond and equity)
=> diversi fication and risk reduction
Typical structures of securitizations
Credit tranching
Credit risk ≈ failing to make full and
timely payments ≈
waterfall
structure
Allow investors to choose the level of credit risk that they prefer to bear.
Senior được bảo vệ tốt nhất => Higher credit rating => Lower yield => Default thì sẽ được trả trước
Time tranching
Prepayment risk ≈ the cash flows will be different from the scheduled cash flows
The
first tranche
receives all principal payments
until it is paid off
=> more
contraction
risk
The
second tranche
receives
no prepayments
until the first tranche is paid in full, then receives all principal payments until the entire issue is paid off => more
extension
risk + less
contraction
risk
Structure of the securitization can also be structured with multiple classes of securities, each with a different claim to the cash flows of the underlying assets. The different classes are often referred to as
tranches
.
With this structure, a particular risk of the ABS securities is redistributed across the tranches.
Prepayment Risk & Non-Mortgage Backed Securities
Prepayment Risk
Nó có 2 loại risk:
Risk trả sớm (
Contraction
risk)
Risk trả chậm (
Extension
risk)
(Chữ C đứng trước chữ E)
Prepayment Rate Measures
:
Theo tháng: the single monthly mortality rate (SMM)
Theo năm: the conditional prepayment rate (CPR) (PSA)
Weighted Average Life
Higher
prepayment rate assumed →
Shorter
the average life of MBS
Lower
prepayment rate assumed →
Longer
the average life of MBS
CMO
are securities that are collateralized by RMBS (they are securities secured by other securities, RMBS, mortgage pass-through)
Mục đích làm ra CMO là tạo thêm các tranches khác nhau để exposure risk từ các MBS giống nhau về risk
=> Each CMO tranche has a different mixture of contraction and extension risk
IMPORTANT COMMENTS
Planned amortization class (PAC) + Support tranches
Sequential pay CMO
Floating-rate tranches
TYPE OF ASSET BACKED SECURITIES
(Các khoản loan thực sự sẽ secured cho MBS, sau đó diversified pool thành 1 cục => biến nó thành CDO hỗn hợp)
Commercial mortgage-backed securities (
CMBS
)
Backed by Income-producing property
Office buildings, industrial properties
Shopping centers, hotels, and health care facilities
Multifamily properties
Lock-out period
Ratio for analysis
LTV
Debt-service-coverage ratio (DSC)
Bởi vì CMBS lấy tiền từ hoạt động cho thuê, hoặc là sử dụng bđs đó để trả lãi và gốc => net operating income / debt service càng
cao
sẽ càng
giảm rủi ro
.
Structure
Credit tranching
Non-mortgage asset- backed securities
Residential mortgage-backed securities (
RMBS
)
Residential mortgage loans
(Secured for RMBS)
Characteristics
Phân loại based on Credit quality
Subprime loans
• Lower credit quality
• Without a first
lien
on the property (Ko có quyền nắm TS thế chấp)
Prime loans
• High credit quality
• Income sufficient
Loan-to-value ratio
= Mortgage
loan
value/Asset's purchase price
Amount of loan and collateralized assets’s price
The borrower’s equity changes because:
• Changes in market value of the property
• Borrower trả nợ
Mortgage design
Amortization Schedule (R39)
Prepayment Options and Prepayment Penalties (cmt)
Interest Rate
Adjustable-rate mortgage (FLOAT)
Initial period fixed rate (Fix 1 thời gian, rồi float)
Fixed rate
Convertible (Tới 1 thời điểm, cho chọn float hay fix)
Rights of Foreclosure (Tịch thu TS)
Recourse Loan (Truy đòi)
Non-recourse Loan (Miễn truy đòi)
Maturity
Agency RMBS
(issued by Federal agencies => no credit risk
OR Quasi-gov entities => Minimal credit risk)
Non-Agency RMBS
(issued by private entities)
Mortgage pass-through securities
represents a
claim on the cash flows
from a pool of mortgages (Investor)
Pass through rate
Weighted average maturity
≈ weighted average of the final maturities of all the mortgages in the pool
Weighted average coupon
≈ weighted average of the interest rates of all the mortgages in the pool
Criteria on MBS pool
:
maximum
size
maximum
LTV ratio
minimum
percentage down payment
minimum
documentation required
insurance
purchased by the borrower
Covered bonds
Collateralized debt obligations (CDO)
Synthetic CDOs (credit default swaps được backed)
Structured Finance CDOs
Collateralized loan obligations (CLO)