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18 -19.0. ABS - MBS Instrument & Market Features - Coggle Diagram
18 -19.0. ABS - MBS Instrument & Market Features
Covered bond
Definition
Covered bonds are similar to ABS, but the underlying assets (the cover pool), although segregated (tách biệt), remain on the BS of the issuing corporation (no SPE is created)
Characteristic
Covered bonds uasually consist of
one bond class per cover pool
1 cover pool đảm bảo cho 1 loại bond (cùng senior, collateral, secured/unsecured)
Covered bonds ofer bondholders
dual recourse
from both the isuing financial institution and the underlying asset pool
Được đòi nợ từ : (1) cover pool, (2) tài sản cty phát hành
Covered bond do not expose investors to prepayment risk
ko chịu rủi ro trả trước, bên sponsors có trách nhiệm thêm mới để nó được duy trì
Covered bonds usually carry
lower credit risks
and offer lower yields than otherwise similar ABS
If the issuer of covered bond default
Hard-bullet convered bond
: 1 bond default, trigger the others too
Soft-bullet CB
: delay all until a new final maturity date, which is after
1 yr
the orignial maturity date
Conditional pass-through CB
: convert to pass-through securities after the original maturity date if all bond payments have not yet been made
Credit enhacement structure
Internal Enhancement
Subordination / Credit tranching
Creating more than 1 bond class or tranche
Ordering the claim priorities for interest in an asset between the tranches
Tức nếu lỗ thì con đứng ở hàng surbodination sẽ chịu trước, rồi từ từ chia lên trên
Overcollateralization
The value of pledged collateral is greater than the par value of the debt issued
The excess collateral can be used to absorb (hấp thụ) future losses
Reserve account/funds
Type
Cash reserve fun: A cash deposit used to absorb losses
An excess spread account: An allocation of any asset cf remaining after paying interest to bondholders
The excess spread can be retained and deposited into a reserve account as a first line of pretection against losses
The excess spread can be used to retire the principal, with the most senior tranche having the first claim on these fund -
"turboing"
process
ABS - Non-MBS
Non-MBSs
Asset collateral
Auto loan: vay mua xe
Lease reveivables: thuê tài sản tài chính
Personal loan: vay cá nhân
Commercial loán: vay thương mại
Phân loại theo CF:
Amortizing loans
Non-amortizing loans
Types
Auto loan ABS
Credit Card ABS
Solar ABS
Vở trang 73
Collateralized debt obligation
Definition
CDO is a security that is backed by a diversified pool of securities that may include:
Corporate bonds and emerging market bonds (Collateralized bond obligation - CBOs)
ABS, RMBS, CMBS and other CDOs (structured finance CDOs)
- Leveraged bank loans (Collateralized loan obligations - CLOs)
Credit default swaps and other structureed securities (synthetic CDOs)
Manager
Responsibility
Buy and sell debt obligations for and from the CDO's collateral to generate sufficient cf to meet the obligations to the rCDO bondholder
Benefit
Investor
CDO senior tranche
CDO mezzanine tranche
Earnings a potentially higher yield than that on a comparably rate corporate bond by gaining exposure to debt products that they may not otherwise be able to purchase
CDO Equity tranche
Having the potential to earn an equity-type return, thereby offsetting the increased risk from investing in the subordination class
Manager/Issuer
The aim is to earn a rate of return on the collateral pool of assets that is higher than the interest costs of bonds issued
The return in excess of what is paid out to the bond classes accrues to the holders of the equity tranche and to the CDO manager
CDO is a leveraged transaction: thay vì bỏ tiền lớn để leverage, thì ABS là góp tiền chung mà, lợi nhuận được up lên theo size
Restrictive covenant
ensure that the credit ratings assigned to the various tranche at issuance are maintained during the term of CDO
ensure that the senior bond classes are adequately protected
Failure to meet these tests may trigger an immediate payoff
Generic CLOs structure
(1) Cash flows CLOs
Payents to CLO investors are generated through cash flows on the underlying collateral
(2) Market value CLOs
Payments to CLO investors are generated through trading the market value of the underlying collateral
(3) Synthetic CLOs
The collateral pool exposure is generated through credit devivative contracts. In this type of CLO, the CLO trust does not take ownership of the collateral
Tranching
Credit risks
Subordination - Credit tranching
The bond classes deffer as to how they will share any losses relting from default of the borrowers
=>
Waterfall
structure
Đứa nào thấp seniority hơn thì chịu lỗ nhiều hơn
Prepayment risk
Timing tranching
The borrowers have ability to alter payments, usually to take advantage of interest rate movements
The creation of tranches that possess different expected maturities is referred to as time tranching
Time tranching is the process in which a set of bond classes or tranches is created that allow investors a choice in the type of prepayment risk that they prefer to bear
ai mua trước thì được ưu tiên trước
mua sớm: sợ contraction risk
mua trễ: sợ extension risks
MBS
Definition
Residential mortgage loan
is a loan secured by the collateral of some specified real estate property that obliges the borrower to make a predetermined series of payments to the lender
The mortgage gives the lender the foreclosure (the right to seize (tịch thu) the property and recover the amount due to selling it)
Loan and collateralized asset's price
Lúc vay thì người vay chỉ được vay cỡ 80% giá trị tài sản muốn mua thui.
20% còn lại - the down payment - là vốn tự có của người vay
Loan-to-value ratio (LTV)
là tỷ lệ giữa khoảng vay và tài sản mua
Nó giảm khi mà:
Vốn tự có nhiều hơn, the down payment higher
Likely the borrower is to default less
Protection the lender has for recovering the amount loaned in case the borrower defaults more
Types
Prime loan
High credit quality, Debt-to-Income (EBIT) cao
Subprime loan
Lower credit quality
5 primary specifications of mortgage design
Maturity
Số năm đáo hạn
US: 15-30 năm
EU: 20-40 năm, trong khi đó France and Spain, 50 năm
Nhật: có khi 100 năm
Interest rate determination
(1) Fixed-rate
Cố định hết đời
(2) Adjustable-rate mortgage (ARM) or variable-rate mortgage
Rate = MRR + Spread
có trần cho interest
(3) Initial period fixed rate
Cố định 3 năm đầu sau là floating
(4) Convertible
Chuyển đổi qua lại sau khi fixed 3 năm đầu
(3) Amortization Schedule
Hầu như là khấu hao
Fully amortized bond
Partiablly amortized bond
Interest-only mortgage (bullet mortgages)
(4) Prepayment options/penalties
Prepayment options
có phép trả sớm trong thời gian đi vay
Prepayment penalties
trả sớm thì trong thời gian quy định là sớm thì phạt tiền
(5) Right of the lender in foreclosure
types
Recourse loan: được kiện để lấy tài sản bù vào phần shortfall
non-recourse loan: ko được kiện để bù đắp lỗ
Vấn đề
Underwater mortgage (giá bị tài sản < số vay mà người vay vay)
nonrecourse loan
Ko có động lực trả - strategic default
Recourse loan
Sợ vì có khả năng bị kiện lấy tài sản
RMBS
Definition
Are the bonds created from the securitization of mortgages related to the puchase of residental properties
Types
Depend on issuers
Agency RMBS
Federal agencies
Are guaranteed by the full faith and credit of US gov => no credit risk
Quasi-gov entities (GSEs)
Do not carry the full faith and credit of US gov => minimal credit risk
Nonagency RMBS
Private entities
Agency RMBS
Must meet specific underwriting standards
Maximum size of the loan
Loan documentation required
Maximum LTV ratio
Insurance is requirement
Smaller agency RMBS
Mortgage pass-through securities
Definition
Is created when shares or participation certificates in a pool of mortgage loans are sold to investors
sở hữu trực tiếp, chịu rủi ro từ nó luôn
Cash flow
Periodic payment:
Monthly mortgage payments (interest)
The scheduled repayment of
principal
Prepayment
But Cash payment for security holder must minus the "servicing and guaranteeing fee"
Coupon rate
Called pass-through rate
The pass-through rate = mortgage rate on the underlying pool of mortgage - Servicing and guaranteeing fees
Difference between MPTS
Due to different mortgage rates and different maturities
The WAC is weighting the mortgage rate of each mortgage
The WAM is weighting the mortgage maturities of each mortgage (đơn vị: month)
WAC(WAM) = %P1 x X1 + %P2 x X2 + ... + %Pn x Xn
Prepayment rate measure
2 Key prepayment rate measure are
Monthly measure: the single monthly mortality rate (SMM)
Corresponding annualized rate: the conditional prepayment rate (CPR)
SMM
Reflect the dollar amount of prepayment for the month as a fraction of balance on the mortgage after accounting for the scheduled principal repayment for the month
CPR
Is a corresponding annualized SMM
Benchmark - PSA
The PSA prepayment benchmark is defined in terms of a monthly series of CPRs
The standard for the PSA model is 100 PSA
nếu CPR cao hơn PSA thì tức là cái prepayment của RMBS đó đang nhanh hơn chuẩn gấp = CPR/PSA
Weight average life
Vì investor không được công bố cụ thể tỷ lệ prepayment sao nên họ sinh ra cái này để tính
higher prepayment rate assumed -> Shorter the average life of MBS
Lower prepayment rate assumed -> Longer the average life of MBS
Collateralized mortgage obligations (CMOs)
Definition
Are securities that are collateralized by RMBS
dùng MPTS làm underlying
but phân tầng tranche theo timing
Types
Sequential-pay CMO structure
tuần tự -> Waterfall -> người nắm giữ ngắn chịu rủi ro đầu tiên
Planned Amortization class (PAC) CMO
PAC cố định (lãi + gốc) theo từng kỳ -> tính luôn phần trăm rung lắc chuẩn vào rồi -> phân bổ cho senior investor
Nếu rung lắc ngoài chuẩn thì support tranching chịu risk
Prepayment: support tranching nhận gốc nhiều, sớm
Default: support tranching không nhận gì
Dựa trên chuẩn interval PSA định ra ban đầu để xác định risk chịu.
nếu rung lắc trong band thì support hứng hết
ngoài band thì PAC cx phải chịu
Floating rate CMO
tự tách 1 fixed RMBS thành
1 floating = MRR + Spread
1 inverse floating = Maximum Fixed - floating
Non-Agency RMBS
Đơn giản là được phát hành phải private entity
Có credit risk cao
Cần xem xét credit enhancement
Internal credit enhancement : Subordinate / Timing tranching; Reserve funds
External credit enhancement : refers to financial guarantees received from a third party
CMBS
Definition
are backed by a pool of commercial mortgage on income-producing property
Multifamily properties: tòa chung cư
Office buildings, industrial properties: tòa nhà văn phòng, xưởng
Shopping centers, hotels, and health care facilities: tòa nhà thương mại
RMBS là recourse loan
CMBS là nonrecourse loan
Credit risk
Evaluation of Credit risk
LTV
DSC
Vở trang 85
Basis structure
Vở trang 85-86