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6 votes
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Mortgage Backed Securities Settlement Date

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 ...
Thomas Boyd's user avatar
5 votes
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What is actually going on in Monte-Carlo simulation for Mortgage backed securities?

In my understanding, the mortgage prepayment option, at any point in time, is a function of the value of the mortgage from that point in time forward. This value, in turn, is a function of the future ...
Kermittfrog's user avatar
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5 votes
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MBS benchmarking

Despite being written more than twenty years ago, you can get a solid introduction to many of the issues that come up in MBS Benchmarking in "Gaining Exposure to Mortgage Benchmarks - A Guide for ...
Sharad's user avatar
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5 votes
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Does TBA become MBS after pool is announced?

The pools to be delivered in a TBA trade are identified no later than 3pm two business days prior to the settlement date ("48-hour day"). Essentially, all TBA pricing is rolled from this ...
Sharad's user avatar
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4 votes
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Understanding Loans with a Dynamic Principal

In real life, notional amounts can get even more complicated than that. Generally, most libraries refer to non-constant notional as "amortizing notional". I will just list the use cases, to ...
Dimitri Vulis's user avatar
3 votes
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Where to get the total volume of MBS (Mortgage Backed Security) purchase by FRB

See the table at https://www.newyorkfed.org/markets/soma-holdings to get a picture of current holdings. If you want to get a sense for how the holdings have changed over time look at the SOMA ...
Sharad's user avatar
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3 votes
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PO (Principal only) mortgage bonds - Does Price or yield go up when interest rates go down?

Prices go up. For 2 reasons a) just like any bond, prices go up when rates go down and b) faster prepayments are expected , which means the maturity of the bond becomes earlier than previously ...
dm63's user avatar
  • 17.1k
3 votes
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MBS Dollar roll mechanics

It is useful to think from the perspective of the institution who is buying the roll (i.e., purchasing TBAs in the front month and selling in the back month). They are short a delivery option: the ...
Sharad's user avatar
  • 1,211
3 votes
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Comparing TBA and Spec OAS

Added later The first answer I came up with was embarrassingly incorrect; I have pointed out why. Please feel free to uncheck it. Technically, this should be impossible: the Spec pool is always ...
Sharad's user avatar
  • 1,211
3 votes

What is "Call a Deal" in structured finance space?

Call means SPV manager can sell liquidate all the assets with a price agreed with 3rd party or originator. Then use the proceeds ...
Shawn Zhang's user avatar
2 votes

Book recommendation for Prepayment model of Mortgage Backed Securities

The canonical reference is the "Salomon Smith Barney Guide to Mortgage-Backed and Asset-Backed Securities" (2001). It is actually a compilation of many research reports/papers originally published by ...
Helin's user avatar
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2 votes
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Pricing structured products (Mortgage Backed Securities)

It may be a different from a buyside perspective, than from a sellside perspective. Off course, I must add a caveat that this is based on my rather limited role and experience in this domain. The ...
bhutes's user avatar
  • 996
2 votes

Mortgage securities prepayment speed and YTM

I cringe a little at the scenario in which the prepayment speed changes, but the observable market price of the security does not change (hence, only the yield reacts). I will construct an analogy ...
Dimitri Vulis's user avatar
2 votes

Mortgage securities prepayment speed and YTM

I can give you the simple intuition using an example, based on the idea that fixed rate mortgage bonds are like regular bonds except with uncertain maturities. Suppose you have a 2% coupon bond ...
dm63's user avatar
  • 17.1k
2 votes

How to calculate scheduled mortgage payment of a mortgage pass-through security?

As per the answer by Magic is in the chain, this is just the calculation for the standard payment on a level-payment MBS pool with monthly amortization. If $B$ is the balance, $WAC$ is the gross ...
Sharad's user avatar
  • 1,211
2 votes

Finding MBS OAS in practice

You can't run the trials again. That would be insane and you'd never guarantee easy convergence. Take all your trials. You have cashflows and short rates. So, two matrices which are $T\times 1024$ in ...
NBF's user avatar
  • 1,078
2 votes
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How to set up data for understanding drivers of prepayments

This is a complex decision which involves the trade-off between aggregation bias and measurement error. For example, see link. In general, there is no cut-and-dried answer -- the appropriate level to ...
Sharad's user avatar
  • 1,211
2 votes
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What is the hedging underlying of MBS

I would definitely not say CTD. And it's not even clear if it should be a UST. In the past, MBS was hedged with USTs, but then MBS spreads blew out, and everyone realised that USTs could rally and ...
NBF's user avatar
  • 1,078
2 votes

Understanding Loans with a Dynamic Principal

Credit card debt, mortgage debt and other retail loan debt, can come with a prepayment risk. In traditional bond terminology this is a callable bond (although the whole loan may not be called at once)....
Attack68's user avatar
  • 10.5k
2 votes

How to model fixed-rate loans or mortgages with act/365 but constant payment

First and foremost, your premise that "most consumer loans/mortgages calculate interest daily based on act/365" is incorrect. At least in the United States, most single-family residential ...
Thomas Boyd's user avatar
2 votes
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Why did Ginnie Mae MBS Net issuance decrease significantly in 2020-2021?

Essentially, because of COVID. As you implicitly point out above, prepayments are usually recycled as new originations but 2020 broke that pattern because of the large number of delinquency-related ...
Sharad's user avatar
  • 1,211
2 votes
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Economics of buying a dollar roll

Buying/selling dollar rolls does not have the same economic exposure as going long/shorting MBS. The following example hopefully clarifies this. Suppose you short (sell) a TBA on June 1st for the ...
Sharad's user avatar
  • 1,211
2 votes

MBS benchmarking

The question is lacking context, but I will try to give an overview: You would first need an index to benchmark to, common MBS benchmark indices include the Bloomberg Barclays U.S. MBS Index, the ICE ...
Hans-Peter Schrei's user avatar
2 votes

TBA - what is and isn't a TBA? (help please)

Those are all basically true. A TBA is an an agreement between 2 counterparties for the short counterparty to deliver to the long counterparty a mortgage pool which satisfies certain criteria (when ...
dm63's user avatar
  • 17.1k
1 vote
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How to calculate aggregated conditional prepayment rates

The aggregation formula for SMM is correct. The SMM for the cohort can be defined to the weighted-average SMMs of the individual loans (in the cohort), where the weights are the scheduled balances of ...
Sharad's user avatar
  • 1,211
1 vote

Loan level model to understand drivers of mortgage prepayments

Probably the most established (thus far...) academic approach to this problem is to use a multinomial logistic regression (the search terms "prepayment model multinomial logit" should turn ...
Sharad's user avatar
  • 1,211
1 vote

Understanding the various terms for balances in MBS

I will list here few of these for you: Deal balance: usually refer to current balance of deal or rather current balance of underlying collateral in a deal. A deal can have many different collateral ...
toing's user avatar
  • 233
1 vote

How turnover rate is dependent on mortgage rate?

Turnover or moving home is, to first order just a function of mortgage age with some strong seasonal patterns, just like refi is related to first order to the mortgage rate and some measure of the ...
NBF's user avatar
  • 1,078
1 vote

How to determine the cash flows of a Mortgage backed security?

Generally speaking, you would want to know the payment frequency of the MBS to know which prepayment assumption to use. In the U.S., the standard MBS pass-through security has monthly cash flows so in ...
Sharad's user avatar
  • 1,211
1 vote

Agency Fixed Rate RMBS Yield Decomposition

The traditional risk factor decomposition of a general MBS includes the following risk factors: Prepayment Risk, Interest-rate Risk (Realized Volatility), Basis Risk, Volatility Risk (Implied ...
Sharad's user avatar
  • 1,211

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