Subjective Real Estate Valuation G. Jason Goddard

Transcript:Subjective Real Estate Valuation G. Jason Goddard:
Subjective Real Estate Valuation G. Jason Goddard Chapter 9 Outline Chapter Highlights Types of Mortgage Backed Securities Residential MBS and Subjectivity Commercial MBS and Subjectivity MBS and Investor Preference Chapter Definitions Agency Guarantees: external credit enhancement for mortgage pools where the government explicitly or implicitly guarantees the credit offering. CDO: Collateralized Debt Obligation CMBS: Commercial Mortgage Backed Securities. Collateralized Mortgage Obligation (CMO) – A mortgage-backed security that generates separate cash flows for different classes of securities called tranches. Tranches have varying loan maturities and prepayment risks and offer varying expected returns for investors. Convexity: Measure of the non-linear relationship of bond prices to changes in interest rates. Covered bonds: Securitization model utilized in Europe and Asia whereby the lender keeps the loans on their balance sheet and has the flexibility to change the loans within the portfolio which is eligible for investment. Chapter Definitions Credit Enhancement: Techniques used to improve the creditworthiness of a borrower. External Credit Enhancements: Techniques used to enhance a borrower’s, or securitization structures creditworthiness that involves third party guarantees such as a Letter of Credit or Monoline Insurance. Herfindahl Index: effective loan count concentration measure in CMBS; also known as Herf score. Internal Credit Enhancements: Techniques used to enhance securitization structure’s creditworthiness that involves injections of capital by the securities’ issuer or originator. Non-recourse financing: Where no personal liability is available to the lender for a loan. Chapter Definitions Over-collateralization: An internal credit enhancement technique in which the originator transfers a pool of collateral loans to the SPV that has a higher par value (usually 5 to 10%) than that of the issued securities. This means that the SPV holds a larger pool of assets than would be necessary if the loans in the pool pay as expected. Private-Label Securities: A mortgage-backed security or other bond created and sold by a company other than a Government Sponsored Enterprise (GSE).The security frequently is collateralized by loans that are ineligible for purchase by Freddie Mac or Fannie Mae. Real Estate Mortgage Investment Conduit (REMIC): A type of special purpose vehicle, created by the Tax Reform Act of 1986, that holds commercial and residential mortgages in trust and issues interests in these mortgages in the form of securities to investors. Chapter Definitions RMBS: Residential mortgage backed securities. Structural Credit Enhancements: Techniques used by securitizations to distribute risk among Bonds, such that some of them provide protection to those that