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How do settlement dates for non-TBA MBS work?

Thanks, VVKK

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  • $\begingroup$ I’m voting to close this question because it is not related to quantitative finance $\endgroup$ – Attack68 Apr 5 at 11:08
  • $\begingroup$ it's related via a follow up question, but you can close, thanks! $\endgroup$ – VVKK77 Apr 6 at 13:37
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Non-TBA MBS are OTC instruments that, in practice, can settle on any date two trading parties agree to. There are operational complexities introduced by accrued interest and underlying collateral payment schedules that make certain times of the month difficult for non-standard settlements, but again, like any OTC transaction, any settlement date is possible. In reality though, non-TBA MBS settlement dates are actually specified in reference to TBA Class settlement dates. We trade non-TBA MBS on "early", "regular", or "late" settlement, specified in reference to TBA Class settlement.

MBS sold for "early" settlement will have a settlement date prior to the front TBA of similar amortization, guarantor, borrower profile etc. Selling $10M 2.5% FHLMC 30YR 225K Loan Balance pool for 4/10/2021 settlement would be selling that pool for "early April settle" (4/10/2021 is before regular Class A settlement of 4/14/2021).

The vast majority, I'd guess 90%, of non-TBA MBS are sold for "regular" settlement, meaning they settle on the same day as the front TBA of similar amortization, guarantor, borrower profile etc. Example: Selling a $10M 2.5% FHLMC 30YR 225K Loan Balance pool for 4/14/2021 settlement would be selling that pool for "regular April settle" (4/14/2021 is regular Class A settlement day).

MBS sold for "late" settlement will have a settlement date beyond the front TBA of similar amortization, guarantor, borrower profile etc. Selling $10M 2.5% FHLMC 30YR 225K Loan Balance pool for 4/18/2021 settlement would be selling that pool for "late April settle" (4/18/2021 is after regular Class A settlement of 4/14/2021).

(note that both FHLMC and FNMA guaranteed pools would specify "early", "regular" or "late" settle in reference to UMBS Class settlement dates)

In my time selling securitized mortgages for a retail originator I never saw MBS securities settle more than a week prior or a week post regular TBA Class settlement days. I'm sure it happens though.

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  • $\begingroup$ Thanks! Great answer, exactly what I was looking for. $\endgroup$ – VVKK77 Mar 25 at 21:32

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