Customized Mortgage-Backed Securities

Anand Bhattacharya, Bill Berliner and Steve Banerjee

in The Handbook of Mortgage-Backed Securities

Published in print August 2016 | ISBN: 9780198785774
Published online October 2016 | e-ISBN: 9780191827594 | DOI:
Customized Mortgage-Backed Securities

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  • Macroeconomics and Monetary Economics


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This chapter discusses the descriptive and valuation issues in the customized mortgage-backed securities (MBS) markets. The concept of custom MBS is based upon identifying obligor and property attributes that result in superior performance. Traditional stratification factors have been the age of loans, gross weighted-average coupon (WAC), and geographic location. Custom MBS have also been created based on attributes such as loan size, occupancy status, credit quality characteristics (such as FICO score), and loan-to-value ratios. The effect on prepayments of a combination of these factors results in a multiplicative effect of the convexity characteristics of the subject MBS. Customized pools have also been used as collateral for structured MBS transactions, with pricing on certain tranches such as interest-only (IO) securities predicated on the advantageous prepayment behavior of the loans.

Keywords: valuation issues; customized MBS markets; mortgage-backed securities; obligor attributes; property attributes; gross weighted-average coupon; credit quality; interest-only securities

Chapter.  6297 words. 

Subjects: Financial Markets ; Macroeconomics and Monetary Economics

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