Register now for AD&Co’s 16th Annual Client Conference in New York and San Francisco to learn more about how the landscape for mortgages and MBS is rapidly changing and being redefined. The conference will be held in New York City on Wednesday, June 11th at TheTimesCenter and in San Francisco on Monday, June 16th at the W Hotel. To register online, simply click here.There is no fee to attend and there are a host of hotel suggestions linked to the registration form. Please feel free to invite your colleagues that may not receive The Pipeline.

At the conference, we will explore the factors that have led to unprecedented declines in prepayment speeds and unparalleled highs in delinquencies and defaults. We will discuss the tools and methodologies that we have developed that can help you cope with the market malaise and help you thrive in the redefined market place. Find out more...

In this article we recommend new Prepayment Model tuning parameter recommendations for Non-Agency and Agency Collateral.

Prepayment Model Tuning Recommendations for Non-Agency Collateral
By Sanjeeban Chatterjee

The mortgage market is going through turbulent times. Lenders are tightening underwriting standards, and it is getting harder to refinance especially for sub-prime borrowers. This and other factors have led to a slowdown in speeds for all non-agency collateral types. Open this article...

“Trust, but Verify” was the Russian proverb used by President Ronald Reagan to describe his approach to arms control with the Soviet Union.  The same standard should be used by investors in mortgage backed securities.

Trust is not the word that investors are using to describe their relationship to participants in mortgage securitization.  Just about anyone and everyone involved in the process of creating loans and transforming them into securities is being blamed for the subprime crisis.  The accusations are flying: Borrowers sought to make a quick buck and were over leveraged.  Brokers engaged in underwriting deceptions or encouraged borrowers to do so on their applications, and earned excessive profits. Lenders ignored their own underwriting guidelines and looked the other way on fraud to boost loan volume. Dealers put together packages of loans they knew would default to gain underwriting fees.   Rating agencies used models that were inaccurate so they could earn the fees from rating more deals. CDO managers put risky bonds in flawed structures to earn management fees. Open this article...

AD&Co’s OAS model computes as many Greeks as one can perceive for MBS.  One of them – Vega – measures price sensitivity to the overall volatility scale.  For example, an MBS may have a Vega of -4.0 meaning that the price drops by 4 bps if the volatility scale inflates by 1%.  This method of measurement ignores the fact that the MBS’s current coupon can’t remain constant with changing volatility.  Hence, we measure only partial, not full, Vega.  Open this article...