The Securitization Markets Handbook: Structures and Dynamics of Mortgage– and Asset–backed Securities

The Second Edition of The Securitization Markets Handbook is a valuable resource for a wide range of financial professionals trying to put a securitization/asset–backed strategy into place as well as newcomers looking to acquire a broad and strong foundation in this discipline.

Written by Charles Austin Stone and Anne Zissu both experts in the areas of mortgage– and asset–backed securities this reliable guide provides you with a practical and detailed picture of a select number of asset classes, securitization structures, and pricing techniques. The assets presented here represent the largest and most liquid segments of the market, and the structures reviewed comprise the most general financial architecture for securitization transactions.

Updated to reflect the current market environment taking into account the impact of the 2007 financial crisis The Securitization Markets Handbook, Second Edition offers an in–depth analysis of selected portions of the mortgage– and asset–backed securities markets. Along the way, it provides valuable insights on:

Key structures and cash flow dynamics Corporate debt and the securitization market Securitization of revolving credit Searching for value in the mortgage– and asset–backed markets And much more

The Second Edition of The Securitization Markets Handbook is an essential resource for both issuers and investors. Examining the subject of securitization from a wide perspective, it can help you excel at this demanding endeavor.

Acknowledgments ix

Introduction xi

PART ONE Key Structures and Cash Flow Dynamics

CHAPTER 1 Mortgage–Backed Securities: Origins of the Market 3

CHAPTER 2 Price Dynamics of Mortgages and Cash Flows 79

CHAPTER 3 Valuation of Mortgage–Backed Securities 97

CHAPTER 4 Other Structures in Asset–Backed Securities:CMOs, PACs, Floaters, Inverse Floaters, CDOs and CDOs–squared, and Synthetic CDOs 131

PART TWO Corporate Debt and the Securitization Markets

CHAPTER 5 How Ford Motor Credit Corporation Has Used Securitization 163

CHAPTER 6 Asset–Backed Commercial Paper 219

PART THREE Securitization of Revolving Credit

CHAPTER 7 Dealer Floor Plan Loans 263

CHAPTER 8 Credit Card Receivables 283

PART FOUR Searching for Value in the Mortgage– and Asset–Backed Markets

CHAPTER 9 Investment, Speculation, and Hedging 327

CHAPTER 10 Credit Risk and Credit Enhancement 385

CHAPTER 11 Dissecting the Risks of a Pool of Securitized Options ARMs 397

About the Authors 429

Index 431

CHARLES AUSTIN STONE, PhD, is a Professor of Finance and the Deputy Chairman of the MS in Business Economics program at Brooklyn College, CUNY. He is a leading expert in asset–backed securities, has edited several books on the subject, and coauthored, with Anne Zissu, the first edition of this book. Stone′s research has appeared in leading academic journals, including the Journal of Real Estate Finance and Economics, FNMA′s Journal of Housing Research, the Journal of Derivatives, the Journal of Applied Corporate Finance, the Journal of Risk Finance, the Journal of Alternative Investments, and Financial Markets, Institutions, and Instruments. He has been invited to lecture on securitization at various major financial and academic institutions.

ANNE ZISSU, PhD, is the Chairperson of the Department of Business at Citytech, CUNY, and a Research Fellow at NYU Poly in the Department of Financial and Risk Engineering. She is a leading expert in asset–backed securities and senior life settlements, and has edited several books on the subject. Her research has appeared in leading academic journals, including the Journal of Real Estate Finance and Economics, FNMA′s Journal of Housing Research, the Journal of Derivatives, and many others. Professor Zissu has been invited to lecture on securitization at various major financial and academic institutions. Professor Zissu has acted as an expert witness on a number of cases related to securitization and senior life settlements.