The Securitization Markets Handbook: Structures and Dynamics of Mortgage - and Asset-Backed Securities

by Charles Austin Stone; Anne Zissu

• ISBN13: 9781576601389
• ISBN10: 1576601382
• Format: Hardcover
• Copyright: 2005-01-01
• Publisher: Bloomberg Pr

Summary

With examples from companies such as GE Capital, Ford Motor Credit, Countrywide Home Loans, and D&K Healthcare, The Securitization Markets Handbook provides descriptions of all major classes of asset-backed securities and offers a practice-oriented commentary on trends in securitization and the value of asset and mortgage-backed securities across industries and throughout the global markets.

Table of Contents

List of Exhibits	xi
Acknowledgments	xvii
Introduction	xix
Part One Key Structures and Cash Flow Dynamics
1 Mortgage-Backed Securities	3	(22)
Origins of the Market	4	(1)
From the Primary to the Secondary Mortgage Market	4	(4)
The Agency Market	5	(2)
The Private-Label Market	7	(1)
Agency and Nonagency Market Segments Compared	8	(9)
Credit Risk Considerations	8	(3)
Mortgage and Funds Flow in the Secondary Market	11	(5)
Industry Illustration	16	(1)
Pricing of Newly Originated Mortgages	17	(8)
Freddie Mac Sample Purchase Pricing	17	(2)
Mortgage Pricing from the Bank's Perspective	19	(6)
2 Price Dynamics of Mortgages and Cash Flows	25	(20)
Bond and Mortgage Basics	26	(19)
Bond Valuation	26	(2)
Price/Yield Relationship	28	(1)
Fixed-Rate Mortgages	28	(6)
Prepayment Option	34	(2)
Macauley and Modified Duration	36	(3)
Convexity	39	(3)
Risk Exposures	42	(3)
3 Valuation of Mortgage- and Asset-Backed Securities	45	(36)
Modeling Cash Flows of Pass-Through, PO, and IO Securities	46	(13)
Information Set	48	(1)
Model	49	(5)
Cash Flow over Time	54	(5)
Effective Duration	59	(1)
Effective Convexity	60	(1)
Case Study: A Pass-Through Security Issued by FNMA	61	(12)
Prepayment Standard Assumption Levels	62	(1)
S-Curve Prepayment Function	62	(3)
Weighted Average Life and Different Spreads Measurements	65	(2)
Spread I, Static Spread (Spread Z), and Spread S	67	(1)
Option-Adjusted Spread	68	(2)
Negative Option Cost	70	(3)
Case Study: Principal-Only and Interest-Only Securities	73	(8)
PO Strip	73	(5)
IO Strip	78	(3)
4 Other Structures in Asset-Backed Securities: CMOs, PACs, Floaters, and Inverse Floaters	81	(26)
Collateralized Mortgage Obligations	81	(12)
Planned Amortization Class	93	(4)
Floaters and Inverse Floaters	97	(10)
Part Two Corporate Debt and the Securitization Markets
5 How Ford Motor Credit Corporation Has Used Securitization	107	(42)
The Case of Ford Motor Credit	108	(1)
Securitized Receivables	108	(2)
Advantages of Securitization	110	(3)
Special-Purpose Structure	113	(1)
Allocating and Funding Credit Risk: Subordinate Classes and Residual Interests	114	(2)
The Two-Step Securitization Transaction	116	(6)
Credit Ratings and On-Balance-Sheet versus Off-Balance-Sheet Cost of Funding	122	(4)
Ford Credit Auto Owner Trust 2000-A: A Case Study	126	(12)
Waterfall of Cash Flows	138	(2)
Credit Enhancement	140	(1)
Overcollateralization	141	(8)
Rating Agency Parameters	144	(2)
Leveraging Credit Risk	146	(3)
6 Asset-Backed Commercial Paper	149	(30)
Why Companies Use Asset-Backed Commercial Paper Programs	151	(4)
GE Capital Example	152	(1)
Ford Motor Credit Example	153	(1)
Countrywide Home Loans Example	154	(1)
ABCP Characteristics	155	(1)
Relationship of Conduit, Originator, and Seller	155	(1)
Securitization Structure and Cash Flow	156	(1)
Credit Enhancement and Liquidity Support	156	(3)
Fully Supported versus Partially Supported	157	(1)
Liquidity Facilities	158	(1)
Cost of Funding	158	(1)
Financier Conduit Hypothetical Example	159	(2)
D&K Example	161	(2)
GE Capital Example	163	(2)
Labor Ready, Inc., Example	165	(1)
Accounting Treatment	166	(3)
Financial Interpretation 46	167	(1)
Primary Beneficiary Status	168	(1)
Risk-Based Capital Regulations	169	(2)
Tier-One Leverage Ratio	169	(2)
Conversion Factor for Liquidity Facilities	171	(3)
Restructuring Possibilities	174	(5)
Part Three Securitization of Revolving Credit
7 Dealer Floor Plan Loans	179	(18)
Trends in Wholesale Automobile Credit Securitization	179	(3)
Basics of the Securitization Scheme	182	(7)
Credit Enhancement	185	(1)
Payment Phases	185	(3)
Uncertain Maturity Date and Fluctuating Account Balance Considerations	188	(1)
Securing Liquidity	189	(1)
Shifts in Seller's Interest and Investor Interest	190	(2)
Seller's Claim on Receivable Pool	192	(1)
Factors in Credit Line Variability	193	(2)
Pool Size Matters	195	(2)
8 Credit Card Receivables	197	(40)
Elements of a Master Trust Pooling and Servicing Agreement	202	(1)
Basics of the Securitization Scheme	203	(10)
Cash Flow Allocation	205	(3)
Principal Collections and Reallocations	208	(2)
Finance-Charge and Remaining Collections	210	(3)
Case Study: MBNA Master Credit Card Trust II	213	(1)
The Seller's Interest and Investor Interest	214	(3)
Retained Interest	217	(2)
Accounting Treatment	217	(1)
Sources of and Changes in Securitization Income	218	(1)
Credit Risk and Credit Enhancement	219	(6)
Case Study: MBNA Credit Card Master Note Trust	225	(1)
Tranches for A, B, and C Classes	225	(2)
ERISA Restrictions	227	(10)
Part Four Searching for Value in the Mortgage- and Asset-Backed Markets
9 Investment, Speculation, and Hedging	237	(44)
Target Investment	237	(11)
Subordinate Segment of Private-Label MBSs	248	(16)
Interest-Rate Risk	264	(2)
Reinvestment of Cash Flow	265	(1)
Interest-Only Strips as a Hedging Tool	266	(7)
Combining Bonds and IOs	266	(4)
Hedging FNMA 9.5 Percent Pass-Through Securities with IO Securities	270	(3)
Principal-Only Strips as a Hedging Tool	273	(1)
Inverse Floaters as a Hedging Tool	274	(5)
Hedging CMOs with Options on Treasury Bonds	279	(2)
10 Credit Risk	281	(8)
Direct Financing of Risk versus Buying a Financial Guaranty	281	(2)
A Financial Guaranty Is Not an Insurance Contract	283	(1)
Selecting Efficient Forms and Levels of Credit Enhancement	284	(1)
Relative Value in Credit-Enhancement Structures	285	(4)
Index	289