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Mortgage-backed and asset-backed securities

Fixed income · Lesson 5 of 5

Lesson 5 of 5

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Lesson 5 of 5 · Fixed income

Mortgage-backed and asset-backed securities

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Describe the securitization process and the basic structure of mortgage-backed securities and asset-backed securities, including the role of the special purpose vehicle and the cash flow waterfall.
Explain the characteristics of residential mortgage loans relevant to securitization, including amortization, scheduled principal, unscheduled principal, and prepayments.

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Describe prepayment risk, including contraction risk and extension risk, and explain the economic factors that influence mortgage prepayment behavior.

Compare major mortgage-backed structures, including pass-throughs and collateralized mortgage obligations, and explain the purpose of tranching principal and prepayment exposure.

Describe common asset-backed securities backed by consumer or commercial receivables and explain the role of credit enhancement and structural protections in supporting the securities’ credit quality.

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