Mortgage Backed Securities
Understand the ﾠtypes of MBS, factors that influence their investment characteristics, analytic techniques used to evaluate risk and return, and MBS trading/settlement.
CPE Credits: 14
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Module 1: Overview Of The Mortgage Backed Securities Market
- Introduction to mortgage backed securities
- Historical background
- Evolution of federal agency mortgage backed securities
- Government National Mortgage Association
- Federal National Mortgage Association
- Federal Home Loan Mortgage Corporation
- Innovations (ARMs, CMOs, SMBS, etc.)
- Originators, servicers, dealers and investors
Module 2: Mortgages Loans
- Characteristics of mortgages
- Types of mortgages
- Mortgage cash flows
Module 3: Mortgage Pass Through Securities
- Types of mortgage pass through securities
- Structural characteristics of pass through
- Weighted average maturity (WAM)
- Weighted average coupon (WAC)
- Weighted average loan age (WALA)
- MBS sector considerations
Module 4: Dynamics Of Mortgage Prepayments
- Demographic considerations
- Seasonal patterns in prepayment rates
- Home sales activities
- Mortgage refinancing
- Quantifying prepayment speed - PSA benchmark
Module 1: Bond Math Basics of MBS
- Price present value of projected future cash flows
- Yield to maturity, cash flow yield and bond equivalent yield
- Complexity of MBS
- Yield spreads versus treasuries
- Yield versus return
Module 2: Analysis Of Pass Though Securities
- Pass through compared to other fixed income securities
- Prepayments and uncertain average life
- Pass throughs price and cash flow dynamics
- Negative convexity
- Total return analysis
- Option adjusted spread analysis
- Duration measures for MBS
Module 3: Collateralized Mortgage Obligations
- CMO basics
- Pay through versus pass through securities
- Plain vanilla CMOs - sequential pay bonds
- Z-bond tranches
- Planned amortization class (PAC) bond tranches
- Targeted amortization class (TAC) bond tranches
- Very Accurately Defined Maturity (VADM) bonds
- Floating and inverse floating rate tranches
- Stripped mortgage backed securities - IOs and POs
- CMO valuation issues
- Structural factors affecting value
Module 4: MBS Trading
- TBA trading
- Dollar Rolls
Module 5: Desk Ready Skills Knowledge Check