Mata kuliah
: F0922 - Pengantar Analisis Pendapatan Tetap
Dan Ekuitas
Tahun
: 2010
MORGAGE DAN ASSET BACKET SECTOR
OF THE BOND MARKET
Pertemuan 8
-mupo-
MORGAGE DAN ASSET BACKET SECTOR
OF THE BOND MARKET
Materi:
1.
2.
Mortgage backed sector of bond market
Asset backed sector of bond market
Bina Nusantara University
3
1.
Mortgage backed sector of bond market,
simple reffered to as the mortgage sector of the
bond market, includes securities backed by a pool
of mortgage loans.
There are securities backed by residenctial mortgage
loans, reffered to as residential mortgage backed
securities, nd securities backed by commercial
loans, reffered to as commercial mortgage backed
securities
1.1 Residential mortgage loans,
a mortgage is a loan secured by collateral of
some specified real estate property which
obliges the borrower to make a predetermined
series of payments. If the borrower defaults
Residential mortgage loans (cont’)
the mortgage gives the lender the right to
foreclose on the loan and to seize the property in
order to ensure that the debt is paid off.
The interest rate is called mortgage rate or
contract rate.
1.1.1 Fixed rate, level payment, fully amortized
mortgage
- Rate is fixed for the life of the mortgage
loan
- The amount of each monthly payment is
the same for the life of mortgage loan
- when the last scheduled monthly mortgage
Fixed rate, level payment….(cont’)
payment is made the remaining mortgage
balance is zero.
1.1.2 Prepayment and cashflow uncertainty
Cash flow from a level payment, fixed rate,
fully amortized mortgage assumes that the
homeowner does not pay off any portion
of mortgage balance prior to scheduled due
date.
A payment made in excess of the monthly
mortgage payment is called a prepayment.
A periode of time over which if the loan is
prepaid in full or in excess of certain
amount of outstanding balance, there is
a prepayment penalty.
Prepayment and cashflow uncertainty (cont’)
This period is reffered to as the lockout
period or penalty period. During the
penalty period the borrower may prepay up
to a specified amount of outstanding
balance without penalty. Over that
specified amount, the panalty is set in
terms of the number of month of interest
that must be paid.
1.2 Commercial mortgage backed securities (CMBSs)
backed by a pool of commercial mortgage loans
on incoming producing property-multifamily
properties (apartement buildings), office
buildings, industrial properties (warehouses)
shopping centers, hotels and health care
facilities.
Commercial mortgage backed securities (cont’)
Commercial loans are nonrecourse loan. If
there is a default, the lender looks to the
proceeds from the sale of property for
repayment and has no recourse to the
borrower for any unpaid balance
2. Asset backed sector (ABS) of the bond market
As an alternative the issuing of a bond, a corporation
can issue a security backed by loans or receivables.
Debt instruments that have as their collateral loans or
receivables are reffered to as asset backed securities.
The transaction in which asset backed securities are
created is reffered to as a securitization.
Asset backed sector of the bond market (cont’)
2.1 Home equity loans,
is a loan backed by residential property. The loan
was typically a secondcond lien onproperty that
was already pledged to secure a first lien.
Today, a home equity loan is often a first lien on
property where the borrower has either an
impaired credit history and/or the payment to
income ratio is too highfor the loan to qualify as
a conforming loan for securitization.
The borrower used a home equity loan to
consolidate consumer debt using the current
home as collateral rather than to obtain funds
to puchase a new home
Asset backed sector of the bond market (cont’)
2.2 Manufactured housing backed securities,
are backed by loans for manufactured homes. In
contrast to site built homes, manufactured
homes are built at a factory and then transported
to a site.
There are several reason at this backed
securities:
- the loan balances are typically small so that
there is no significant dollar savings for
refinancing
- the rate of depreciation, in the early years is
greater than the amount of the loan paid off.
- Typically borrowers are of lower credit quality
Manufactured housing backed securities (cont’)
and therefore find it difficult to obtain fund
to refinance.
2.4 Auto loan backed securities
represents one of the oldest and most familiar
sectors for the asset backed securities market.
Historically, auto loan backed securities have
represent between 18% to 25% of the asset
backed securities marketThe loans are of high
credit quality for the following reasons:
- they are a secured form of lending.
- they begin to repay principal immediately
through amortization.
- they are short term in nature
-major issuers have tended to follow reasonably
Auto loan backed securities (cont’)
prudent underwriting standards.