...Mortgage backed Securities I am going to talk briefly about Mortgage backed Securities , just a general overview. In the next few weeks we will get into more details. What are Mortgage Backed Securities? MBS is very much similar to bonds, but here the securities are backed by mortgages. A bond is a promissory note where a corporation (or a Government) obliges to pay a certain sum of money every month and at the end of term repay the original sum back. In the case of MBS, the repayment is backed by mortgage payments (by the homeowner). On a broader level, this is what happens. A few mortgages which are similar in nature are pooled together. They are securitized by either a Quasi governmental agency (FNMA, GNMA etc) or a corporation. These pools of MBS are sold to other institutions. Every month, the owner of the pool will receive a portion of the interest payment and principal on the mortgages. There are many risks associated with the cash flow, right from prepayment to loan defaults. Because of MBS the risk of the loan is distributed among all the stakeholders and is not limited to only the small bank which lent the money ( not sure whether it’s a good thing or a bad thing :-) ) Other than small banks looking for liquidity, MBS is a good way of converting a illiquid asset into a tradable instrument. It allows the banks or the originators to diversify the financing sources as an alternative to traditional bonds and stocks. Balance sheets looks more sleek, and the risk...
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...1. Background Introduction This paper looks into Cox Proportional Hazards model and constructs a mortgage default model to estimate the hazard rates of certain residential mortgage-backed securities (RMBS) on a loan-level basis. We analyze loans from an individual credit perspective instead of pool-level basis so that the model would closely fit each loan. This gives us the flexibility to adjust portfolio by observing individual loans and re-estimate their risks accordingly. Ever since early 2000s, the issuance of residential mortgage-backed securities were steadily climbing due to the record-setting housing boom we have ever witnessed, then reached the peak at $1.2 trillion in 2005 and 2006, and finally became the center of attention during the crisis. Many investors have been trying to come up with newer and better models to monitor the default risk of RMBS ever since. Now that a majority of RMBS have been downgraded by credit-rating agencies since, it is necessary for investors to learn how to estimate the risk of their mortgage-backed securities to react to the adverse situation. We will skip the background of securitization and structure of mortgage-backed securities. In short, a pool of securitized mortgages gets divided into multiple tranches with different seniorities, ranging from AAA to equity. The higher the seniority goes, the lower risk and return the investors have, and they suffer losses after the lower seniorities do. Although investors look at a pool or...
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...Mortgage Backed Securities Presented by: Ahmed Saleem M.Shahryar Murad Syeda Afreen Zehra Syed Muhammad Qasim Presented to: Maha Ijaz Economic Overview The US has the largest and most technologically powerful economy in the world, with a per capita GDP of $49,800. In this market-oriented economy, private individuals and business firms make most of the decisions, and the federal and state governments buy needed goods and services predominantly in the private marketplace. US business firms enjoy greater flexibility than their counterparts in Western Europe and Japan in decisions to expand capital plant, to lay off surplus workers, and to develop new products. At the same time, they face higher barriers to enter their rivals' home markets than foreign firms face entering US markets. US firms are at or near the forefront in technological advances, especially in computers and in medical, aerospace, and military equipment; their advantage has narrowed since the end of World War II. The onrush of technology largely explains the gradual development of a "two-tier labor market" in which those at the bottom lack the education and the professional/technical skills of those at the top and, more and more, fail to get comparable pay raises, health insurance coverage, and other benefits. Since 1975, practically all the gains in household income have gone to the top 20% of households. Since 1996, dividends and capital gains have grown faster than wages or any other category of...
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...RESUME Mrs. Neha Abhishek Pawar. 48 Aurora terrace, Kelburn, Wellington, New zealand. Mobile no: 021 0666270 Email: 88nehapawar@gmail.com, yeoleneha@ymail.com ------------------------------------------------- Career Objective: “To obtain a position in fiance, accountancy& management field where I can effectively utilize my academic knowledge and experience” Education Bachelors of Commerce Pune University (completed in the year of May 2009) Majors - Costing Masters of Commerce Pune University Majors: Costing. Cost and Works Accountants The institute of Cost And Works Accountants of India.(completed in the year of 2011) Majors: Costing , Management Post graduate Diploma in financial analysis At Victoria university of Wellington, stating from march 2012 Having Student visa and work permit of 20 hours in a week. Papers being completed in Management * Organization and management fundamentals * Financial accounting fundamentals. * Economics & business fundamentals. * Business mathematics & statistics fundamentals. * Cost and management accountancy * Information system & technology * Business laws & communication skills * Direct & indirect taxation * Management accounting performance management * Cost Audit & operational audit * Quantitative methods * Capital market analysis & corporate laws * Finance managements & international finance * Strategic Management...
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...NBER WORKING PAPER SERIES THE EFFECTS OF QUANTITATIVE EASING ON INTEREST RATES: CHANNELS AND IMPLICATIONS FOR POLICY Arvind Krishnamurthy Annette Vissing-Jorgensen Working Paper 17555 http://www.nber.org/papers/w17555 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 October 2011 We thank Jack Bao, Olivier Blanchard, Greg Duffee, Charlie Evans, Ester Faia, Simon Gilchrist, Robin Greenwood, Monika Piazzesi, David Romer, Thomas Philippon, Tsutomu Watanabe, Justin Wolfers, and participants at seminars and conferences at Brookings, Chicago Fed, Board of Governors of the Federal Reserve, ECB, San Francisco Fed, Princeton University, Northwestern University, CEMFI, University of Pennsylvania (Wharton), Society for Economic Dynamics, NBER Summer Institute, the NAPA Conference on Financial Markets Research, and the European Finance Association for their suggestions. We thank Kevin Crotty and Juan Mendez for research assistance. This paper was prepared for the Brookings Papers on Economic Activity Fall 2011 issue. We have received an honorarium for the presentation of the paper at Brookings. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w17555.ack NBER working papers...
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...Study questions: 1. What are the major assumptions and concepts of the structural frame? The structural frame upholds the notion that organizations are judged primarily on and by the proper functioning of those elements which constitute good organization. For the greater part of the 20th century, the assumptions and concepts of scientific management have informed most theories of practice. One of the earliest precursors of scientific management is Max Weber, hired by Frederick the Great to reorganize the Prussian Army, who conceived the “monocratic bureaucracy” as an ideal form that maximized norms of rationality. His model outlined several major features which include: * A fixed division of labor * A hierarchy of offices * A set of rules governing performance * A separation of personal from official property and rights * The use of technical qualifications (not family ties or friendship) for selecting personnel * Employment as primary occupation and long-term career But, if Max Weber “rationalized” the bureaucracy, Frederick Winslow Taylor “hyper-rationalized’ the bureaucracy. Known as the “father” of scientific management”, he sought an objective, scientific mechanism to improve organizational functioning. Based on these two principal intellectual roots, there are six assumptions of the structural frame: * Organizations exist to achieve established goals and objectives * Organizations increase efficiency and enhance...
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...whether the respective markets for the instruments were active or inactive and whether there was a significant decease in the volume and level of activity for the instruments. b. The valuation technique used by FFC c. The classification in the fair value hierarchy for each input into the fair value measurement and how these classifications affects classification in the fair value hierarchy of the entire instrument. We will answer these questions by each instrument separately: First, Collateralized Debt Obligation (CDO) Before September30th, 2010, FFC was in an active market, and it determined the fair value of the CDO by using a market-based valuation technique that relies on inputs such as quotes prices for similar CDO securities and requires only insignificant adjustments. After that, there was a significant decrease in the volume and level of activities and the CDO’s market was not active. Besides, significant adjustments are required to determine fair value as of the measurement date given the lack of recent and relevant transactions. The valuation techniques FFC used for CDO is income approach, because this way could maximize the use of relevant observable input and minimize the use of unobservable inputs. There are two factors FFC mainly considered in the fair value measurement. Frist, FFC considered the implied rate of return on September 30, 2010, which is the last date of active market for CDO. This is the Level 1 input. According to ASC820-10-35-40, Level...
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...MORTGAGE A Mortgage is defined as a debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments. Mortgages are used by individuals and businesses wishing to make large value purchases of real estate without paying the entire value of the purchase up front. Mortgages are also known as liens against property, or claims on property. It can be further described as the debt instrument giving conditional ownership of an asset, secured by the asset being financed. The borrower gives the lender a mortgage in exchange for the right to use the property while the mortgage is in effect, and agrees to make regular payments of principal and interest. The mortgage lien is the lender's security interest and is recorded in title documents in public land records. The lien is removed when the debt is paid in full. A mortgage normally involves real estate and is a long-term debt, normally 25 to 30 years, but can be written for much shorter periods. Originally written exclusively as fixed-rate fully amortizing loans, mortgages have evolved into more flexible contracts. Since the mid-1970s, the financial industry's funding sources have become more volatile and market sensitive, and legislation and regulation have relaxed the prohibitions on alternative types of mortgage financing, such as variable rate and adjustable rate mortgages. Recent innovations in packaging of mortgage loans for resale in the...
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...SAFE AND SECURE A security instrument accompanies (or should accompany) every Promissory Note. The security instrument is state specific, and examples include mortgage, deed of trust, security deed, or trust deed. The security instrument identifies and encumbers the real property used as collateral for the note. It is notarized and recorded with the county in which the property is located. Once recorded, it secures an interest in, or lien against, the property. In title theory states, a mortgage is used and it conveys ownership to the lender. A clause in the mortgage provides that title reverts back to the borrower when the loan is paid. In lien theory states, the mortgage creates a lien only on the property and the title remains with the borrower. The lien is removed when all the payments have been made. With a Deed of Trust there are three parties involved; the Trustor (borrower), the Beneficiary (lender or note holder), and the Trustee (third party holding title to the property, normally a title company or attorney). With a mortgage document, there are only two parties involved, the borrower and the lender. With a Deed of Trust, the borrower conveys title to a trustee who will hold title to the property for the benefit of the lender. The title remains in trust until the loan is paid. Certain language is vital in a security instrument. When reviewing, look for the following terms: Due on Sale Clause: This clause allows the (note holder, lender, etc.) to...
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...FIFTH EDITION 2005 Transforming Real Estate Finance A CMBS Primer Primary Analysts: Howard Esaki Marielle Jan de Beur Masumi Goldman This book is an overview of the Commercial Mortgage-Backed Securities (CMBS) market. The contents of this publication are over eight years in the making and include excerpts of research reports from as early as 1997. In this fifth edition of our primer, we have reorganized the chapters to highlight the different investment options within CMBS. New material since our last edition includes sections on the various types of AAA CMBS classes, total rate of return swaps, floating rate large loan transactions, and an updated version of the commercial mortgage default study. We hope you find this book useful and welcome comments so that we can improve future editions. FIFTH EDITION 2005 Transforming Real Estate Finance A CMBS Primer Primary Analysts: Howard Esaki Marielle Jan de Beur Masumi Goldman The Primary Analyst(s) identified above certify that the views expressed in this report accurately reflect his/her/their personal views about the subject securities/instruments/issuers, and no part of his/her/their compensation was, is or will be directly or indirectly related to the specific views or recommendations contained herein. This report has been prepared in accordance with our conflict management policy. The policy describes our organizational and administrative arrangements for the avoidance, management and disclosure...
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...Why is corporate finance important to all manager? Corporate finance is important to all managers due to the priority capital has in a company. That is, without effective financial management, a company will be unable to develop products, get them to market and grow the business. Organizational forms a company may have as it evolves from start up to major corporation are: Sole Propietorship. Effectively a person “hangs a shingle” and becomes a business. It is subject to few government regulations and income is taxes as the proprietor’s personal income. However, its structure makes it difficult to generate growth capital, the proprietor has unlimited personal liability for company debts and the company only lives as long as the propietor. Partnership: This can take the form of a limited partnership and a general partnership where liability and control is divided along these lines. A limited liability partnership or limited liability company is structured to where all partners have limited liability with respect to the business’s liabilities. This works well for the partners but is an area of concern for the partnerships lenders, customers and suppliers. Corporation: This is created as a separate legal entity under law and as such is “separate and distinct” from its owners and managers. The advantages are is has unlimited life and can continue after the death of the owners. It also has easy transferability of ownership interest through transfer and sale of shares...
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...into businesses and infrastructure. E2–2 You are the chief financial officer (CFO) of Gaga Enterprises, an edgy fashion design firm. Your firm needs $10 million to expand production. How do you think the process of raising this money will vary if you raise it with the help of a financial institution versus raising it directly in the financial markets? As a CFO if I raise the money with the help of a financial institution I will be in a better position to get loan rates that are lower and cheaper with possibly better terms than if I raised it in the financial markets. E2–3 For what kinds of needs do you a think firm would issue securities in the money market versus the capital market? If a firm is investing in itself and would like to have a situation where they need money for a short period of time they will issue securities. Some of those...
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...Rights and Duties of Parties Prior to Foreclosure Theories of Mortgages 1) Title Theory of Mortgages: a. Mortgagee holds legal title to land until the debt is satisfied. Equitable title remains in borrower. When mortgage is paid off, lender loses legal title. b. Significance: With legal title, lender has superior claim to the rents over anybody else’s interest that arises later. The lender has the right to take possession upon foreclosure, and doesn’t need ancillary remedies. 2) Lien Theory of Mortgages (restatement) a. Mortgagee retains legal and equitable title to the land when a mortgage is executed. Lender has a lien. The lender has no claim on possession or rents (unless the borrower mortgaged the rents). 3) Intermediate Theory a. Lien theory until default and title theory thereafter. As a practical matter, these states are really title theory states because nothing happens until default anyways in a title theory state. Ancillary Remedies (available to lender before foreclosure) 1) Mortgagee taking possession a. Takes possession & manages property; includes collecting rents & profits b. Lender must use legal process & cannot use self-help, even if so stated in mortgage or contract. c. Not available in lien theory states, unless: i. MR abandons property (public policy) ii. Consent of MR iii. Result of Good faith invalid foreclosure ...
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...Acres, Ltd. V Charter Bank of Gainsville, Holly Hill purchased land from Rogers and Blythe giving them a promissory note and purchase money mortgage. The note stated, “this note with interest is secured by a mortgage on real estate, of even date herewith, made by the maker hereof in favor of the said payee, and shall be constructed and enforced according to laws of the State of Florida” (HOLLY HILL ACRES, LTD., a Limited Partnership, Appellant, v. CHARTER BANK OF GAINESVILLE, a Banking Corporation, et al., Appellees., 1975). The promissory note was issued to Rogers and Blythe, Rogers and Blythe later took a loan from Charter Bank, in order to secure the loan, they transferred the promissory note they had created with Holly Hill. After Holly Hill defaulted, Charter Bank sued to recover on Holly Hill’s promissory note, the question being if the reference to the mortgage in the note makes it non-negotiable. First, it would have to be determined if Charter Bank was a holder in due course, they do fit the books description “a holder who takes a negotiable instrument for value, in good faith, and without notice that is defective or overdue” (Cheeseman, 2010). Which according the case the lower court did agree with. Although the court on appeal found the note was non-negotiable because it incorporated the terms of the purchase money mortgage. Now the bank was not a holder in due course, therefore was subject to any defenses that Holly Hills made. Holly Hills brought up the defense...
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...Asia Pacific Equity Research 25 February 2005 Australian Mortgage Industry Volume 1 A Lot of Fat ! JPMorgan Australian Banks Team Brian Johnson (61-2) 9220-1605 brian.d.johnson@jpmorgan.com Richard Wiles (612) 9220 1525 richard.e.wiles@jpmorgan.com Ed Henning (61-2) 9220-1933 ed.a.henning@jpmorgan.com Fujitsu Australia Team Martin North (61-2) 9293-0617 martin.north@au.fujitsu.com Tom Dissing (61-2) 9293-0423 tom.dissing@au.fujitsu.com This report is the result of a joint effort between Fujitsu Australia and JPMorgan, focusing on developments in the Australian mortgage industry. We use the Fujitsu Mortgage Market and Yield Improvement Modelling. See page 30 for analyst certification and important disclosures, including investment banking relationships. JPMorgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Brian Johnson (61-2) 9220-1605 brian.d.johnson@jpmorgan.com Asia Pacific Equity Research 25 February 2005 Table of Contents Executive Summary .................................................................3 Industry Overview ....................................................................5 Mortgage Brokers................................................................
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