FINA 475 Lecture Notes - Lecture 14: Weighted Arithmetic Mean, Conforming Loan, Investment
4 Dec 2017
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The residential mortgage market is divided into two subsectors. Loans that satisfy standards of ginnie mae, fannie mae, freddie mac (conforming loan) Loans that fail to conform for a reason other than credit quality or because loan is not a first lien. Market of loans with impaired credit rating or where loan is second lien. All of the prime and subprime loans can be securitized in different sectors of the. Loans that satisfy standard of agencies are used to create rmbs that are referred to as agency mortgage backed securities (mbs) Agency cmos and stripped cmos are created from mortgage pass through securities. Cms and agency stripped mbs referred to as derivative mbs products. Created by poling mortgage loans and issuing certificates. Investor receives a pro rata share in the cash flows. Single class mbs because only one class of bondholders. When a pass through security is first issued, the principal is known.
