Mortgage-backed Securities:
2-Day Intensive Bootcamp


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  • Level: Introductory
  • 14 CPE Credits
  • Group-Live
  • Prerequisite: none
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  • US $1,695
  • Group discounts available

INSTRUCTOR

Douglas C. Carroll    Read bio

course overview

Mortgage-backed Securities Bootcamp is a two-day seminar that provides a comprehensive introduction to the US mortgage backed securities market. The presentation will address topics from mortgage loan origination and securitization through the trading and analysis of MBS. Along the way the sessions will describe and investigate the investment characteristics of a wide range of different types of mortgage backed instruments including agency pass through securities, agency and non-agency collateralized mortgage obligations (CMOs) and commercial mortgage backed securities (CMBS).

The initial sections of the presentation will familiarize participants with a variety of MBS market fundamentals to facilitate the later discussion of the different types of securities. First comes an overview of the current MBS market identifying the distinguishing characteristics of the market and securities traded as well as significant trends and events having had significant impacts visible in the market today. There will be a discussion of mortgage loans addressing contract features, the various types of mortgage contracts, market conventions for categorizing mortgages and, most importantly, how these factors relate to cash flows to mortgage holders. The US mortgage agencies (FNMA, FHLMC and GNMA) and their role in the operation of the market will be a significant element in this introduction.

The bulk of the first day will be devoted to agency pass through securities. This portion of the session will begin with an end-to-end overview of a pass though security from mortgage origination and securitization of the loans to sale of interests in the mortgage pool to investors, through tracking the cash flows from payment by the mortgagors to distribution to investors. This high level overview will be followed by a detailed look at the cash flows, first on individual mortgages, then on mortgage loan pools, identifying the primary factors influencing prepayment rates and cash flows to investors. There will be a brief discussion of the bond math of MBS and the widely used prepayment benchmarks (PSA and CPR) to familiarize participants with market conventions. The section on pass through securities will wrap up with an investigation of the investment characteristics or these securities to include prepayment risk, duration and (negative) convexity and OAS analysis.

Next the program turns to collateralized mortgage obligations. The initial focus will be on agency CMOs. The presentation will address the structure of agency CMOs and describe the main types of tranches such as sequential pay, Z-bonds, PACs, TACs, floaters and inverse floaters as well as IO and PO strips. Emphasis will be given to the investment characteristics and cash flow implications of the types of tranches individually as well as how different tranche types impact the cash flows to the other tranches in the CMO. When the discussion moves on to non-agency CMOs the initial focus will be on the differences in structure, collateral and risk between agency and non-agency securities. This portion of the presentation will consider the various methods of credit enhancement (especially the senior/subordinated structure) and the types of mortgages as well as the interaction between those factors and their effect on the risk and credit rating of the issues. 

course details

Course Objectives:

By the end of the course, participants will be able to:

  • Describe the features and characteristics of Mortgage Backed Securities
  • Recognize main applications of MBS
  • Identify the main risks associated with MBS
  • Understand the main terminology used in the marketplace
  • Discuss main evaluation tools
  • Classify the different structures in the market

Session 1:  Overview of the Mortgage Backed Securities Market

By the end of the session, participants will be able to:

  • Explain mortgage backed securities
  • Discuss the historical background
  • Identify Federal agency mortgage backed securities (MBS) programs - pass through securities and participation certificates (PCs)

Session 2: Mortgages Loans

By the end of the session, participants will be able to:

  • Discuss the characteristics of mortgages
  • Distinguish different types of mortgages
  • Recognize and understand mortgage cash flows

Session 3:  Mortgage Pass Through Securities

By the end of the session, participants will be able to:

  • Describe the types of mortgage pass through securities
  • Identify and discuss the characteristics of pass throughs
  • Explain prepayment of principal

Session 4:  Mortgage Cash flows and Prepayments

By the end of the session, participants will be able to:

  • Identify the principle factors that affect mortgage prepayments
  • Explain pass through structure impact on expected cash flows
  • Analyze mortgage pool characteristics
  • Recognize mortgage pool prepayment considerations
  • Quantify prepayment speed

Session 5:  Mortgage Pass Through Securities: Risk and Return

By the end of the session, participants will be able to:

  • Recognize and analyze risk
  • Identify the components of return
  • Explain pricing conventions for pass through securities

Session 6:  Bond Math of Mortgage Backed Securities

By the end of the session, participants will be able to:

  • Price present value of future cash flows
  • Assess complicating factors with MBS
  • Distinguish yields – cash flow yield or bond equivalent yield
  • Contrast yield versus rate of return

Session 7:  Analysis of Pass Through Securities

By the end of the session, participants will be able to:

  • Compare pass through securities to other fixed income securities
  • Explain the causes of complexity in MBS
  • Analyze pass through securities’ price and cash flow dynamics

Session 8:  Agency Collateralized Mortgage Obligations (CMOs)

By the end of the session, participants will be able to:

  • Discuss CMO basics
  • Describe Z-bond tranches and their unique characteristics
  • Explain planned amortization class (PAC) bond tranches
  • Discuss targeted amortization class (TAC) bond tranches
  • Analyze floating and inverse floating rate CMO structures
  • Assess stripped mortgage backed securities

Session 9:  Analysis of Agency CMOs

By the end of the session, participants will be able to:

  • Identify investment characteristics of each type of tranche
  • Compare relative risk and expected returns of different types of tranches
  • Recognize the interaction between various tranches and the impact on investor cash flows

Session 10:  Non-agency CMOs

By the end of the session, participants will be able to:

  • Compare with agency CMOs
  • Discuss credit enhancements – internal and external
  • Review types of collateral
  • Analyze non-agency CMOs
  • Assess the interplay of type of collateral, credit enhancements and credit rating

Session 11:  Commercial Mortgage Backed Securities (CMBS)

By the end of the session, participants will be able to:

  • Compare CMBS to agency and non-agency RMBS
  • Explain the unique characteristics of commercial mortgages
  • Identify types of commercial property and their relative riskiness
  • Analyze the structure of collateral and distributions to tranche holders

Session 12:  Adjustable Rate Mortgages (ARMs and Hybrids)

By the end of the session, participants will be able to:

  • Identify types of adjustable rate mortgages
  • Explain index rates
  • Discuss gross and net margins
  • Analyze interest rate caps and floors
  • Analyze risk and return characteristics of ARMs securities

Session 13:  Trading and Settlement of MBS Trades

By the end of the session, participants will be able to:

  • Identify types of trades – specified and TBA (to be announced)
  • Discuss characteristics of TBA trades
  • Explain good delivery, call out and BMA settlement dates
  • Analyze TBA (forward) pricing

Session 14:  Dollar Rolls

By the end of the session, participants will be able to:

  • Explain the nature and purpose of dollar rolls
  • Discuss the structure of transactions
  • Compare to reverse repos
  • Analyze and apply dollar roll

 

In-house instruction is available.  Contact us to inquire.


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