MBS Market and Agency Pass-Through Securities

Price: $1695   Register now

Recommended that you register at least two weeks in advance.

Course Features

  • Course date:01/14/2020
  • Course Duration: 2 Day
  • Level: Beginner-intermediate
  • Prerequisites: None
  • Method: Live & Virtual
  • Venue: MicroTek
  • Time: 9:00 am – 5:00 pm
  • Dress Code: Business Casual
  • Category:
  • Certificate: Yes
  • CPE Credits: 14
  • Course Code: 802


This course will introduce you to a variety of the more commonly-encountered types of mortgage-backed securities, how they are created, and the differences in credit risk among the securities issues and issuers. You will learn about the unique and sometimes surprising characteristics of pass-through securities with their specific collateral, cash flows, and how those characteristics are used in valuation. You will learn about the market structure of wholesale trading of MBS, including the markets for forward delivery and how that helps originators manage their production pipeline.

Who should take this course:
Anyone connected with the fixed income and/or real estate finance market:
Professionals beginning their careers in fixed income analysis, sales and trading, operations, credit, compliance.
Real estate professions looking for a deep understanding of financing.
Fixed income investors/portfolio managers desiring a deep knowledge of mortgage-backed securities.



The “Agencies”

  • Federal National Mortgage Association (Fannie Mae or FNMA)
  • Federal Home Loan Mortgage Corporation (Freddie Mac or FHLMC)
  • Government National Mortgage Association (Ginnie Mae or GNMA)

Agency-related Issues

  • Government agency versus government sponsored enterprise (GSE)
  • Types of loans securitized
  • Nature and provider of guarantee of agency MBS


Nature of Loans – Secured or Unsecured

Types of Loans by Repayment Terms and Related Cash Flows

  • Most common – fixed rate, level payment, fully amortizing
  • Other: balloons, interest only, fixed or floating interest rates

Methods of Categorizing Loans

  • By property type: single-family residential, multi-family and commercial
  • Purchase money versus refinancing mortgages
  • Conventional mortgages
  • Conforming and non-conforming mortgages


Acquisition of Loans/Loan Securitization

  • Loans purchased for cash or in exchange for pass-through securities
  • Securitized loan held (owed) by grantor trusts
  • Investors buy a claim (equity interest) in the trust account

Cash Flows from Borrowers to Investors (Pro Rata Share of all Distributions)

  • Payments by borrowers – interest and principal according to loan terms
  • Loan servicing – servicers responsibilities and fees
  • Servicers sends principal and interest (less fees) to trust account agent
  • Investors receive all principal collected, whether timely or prepaid
  • Agency guarantees cover any delinquencies
  • Investors receive pass-through rate of interest on outstanding principal
  • Excess spread retained by agency

Characteristics of Loan Pools (Homogeneous Loan Pools)

  • Same type of property
  • Same/similar loan interest rates – rules regarding range of includable rates
  • Same original term
  • WAC, WAM, WALA – weighted average coupon, maturity and loan age

Risks of Agency Pass-through securities

  • Minimal (FNMA and FHLMC) or no (GNMA) default risk
  • Prepayment risk (embedded optionality or uncertain average life)
  • Giants, Megas and Platinum Securities – Pooling of Pass-through Securities


Factors Impacting Prepayment Rates (Variables in Prepayment Models)

  • Current mortgage rates – impact on housing sales and refinancing activity
  • Housing cost versus consumer buying power (e.g. income or wealth)
  • State of the economy
  • Population demographics

Uncertain Average Life

  • Investors will analyze and compare MBS on basis of average life
  • Impossible to forecast accurately
  • Average life will change, typically in the direction adverse to investors


Types of MBS Trades – Specified and TBA (To Be Announced) Trades

Uses of TBA Trades (Beyond Buying to Take Delivery)

  • Long positions with leverage
  • MBS long investors or dealers can hedge holdings of MBS
  • Hedging – e.g. mortgage originators hedge mortgage pipeline risk
  • No requirement to deliver, positions can be rolled forward

TBA Trade Pricing

  • TBA trades are forward trades in agency pass-through securities
  • TBA prices based on cost of carry forward pricing
  • Impact of positive and negative carry


  • John Donato has a broad range of experience in the financial industry, including trading, brokering, and designing many aspects of real-time fixed income and foreign exchange trading systems for interdealer markets. John began his career with trading and risk management roles in fixed income and foreign exchange markets with commercial banks in New York. Among …
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