Asset Securitization: Theory and Practice PDF
Preview Asset Securitization: Theory and Practice
Asset Securitization Theory and Practice Asset Securitization Theory and Practice JOSEPH C. HU John Wiley & Sons (Asia) Pte. Ltd. Copyright#2011JohnWiley&Sons(Asia)Pte.Ltd. Publishedin2011byJohnWiley&Sons(Asia)Pte.Ltd. 2ClementiLoop,#02–01,Singapore129809 Allrightsreserved. Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmittedin anyformorbyanymeans,electronic,mechanical,photocopying,recording,scanning,or otherwise,exceptasexpresslypermittedbylaw,withouteitherthepriorwrittenpermissionof thePublisher,orauthorizationthroughpaymentoftheappropriatephotocopyfeetothe CopyrightClearanceCenter.RequestsforpermissionshouldbeaddressedtothePublisher, JohnWiley&Sons(Asia)Pte.Ltd.,2ClementiLoop,#02–01,Singapore129809, tel:65–6463–2400,fax:65–6463–4605,e-mail:[email protected]. Thispublicationisdesignedtoprovideaccurateandauthoritativeinformationinregardtothe subjectmattercovered.Itissoldwiththeunderstandingthatthepublisherisnotengagedin renderingprofessionalservices.Ifprofessionaladviceorotherexpertassistanceisrequired,the servicesofacompetentprofessionalpersonshouldbesought. Neithertheauthorsnorthepublisherareliableforanyactionspromptedorcausedbythe informationpresentedinthisbook.Anyviewsexpressedhereinarethoseoftheauthorsanddo notrepresenttheviewsoftheorganizationstheyworkfor. OtherWileyEditorialOffices JohnWiley&Sons,111RiverStreet,Hoboken,NJ07030,USA JohnWiley&Sons,TheAtrium,SouthernGate,Chichester,WestSussex,P0198SQ, UnitedKingdom JohnWiley&Sons(Canada)Ltd.,5353DundasStreetWest,Suite400,Toronto,Ontario, M9B6HB,Canada JohnWiley&SonsAustraliaLtd.,42McDougallStreet,Milton,Queensland4064,Australia Wiley-VCH,Boschstrasse12,D-69469Weinheim,Germany LibraryofCongressCataloging-in-PublicationData ISBN978–0–470–82603–4(Hardcover) ISBN978–0–470–82898–4(e-PDF) ISBN978–0–470–82897–7(e-Mobi) ISBN978–0–470–82899–1(e-Pub) Typesetin10/12pt,SabonbyThomsonDigital,India PrintedinSingaporebyToppanSecurityPrintingPte.Ltd. 10 9 8 7 6 5 4 3 2 1 Contents Preface xiii Introduction xv PARTONE BasicsofAssetSecuritization 1 CHAPTER1 AssetSecuritization:ConceptandMarketDevelopment 3 BasicConceptofAssetSecuritization 3 SpecialPurposeEntity 5 AssetSaleversusDebtFinancing 5 TheRequirementofServicing 7 CreditoftheUnderlyingAssets 8 NeedforCreditEnhancement 9 DevelopmentoftheAssetSecuritizationMarketinthe UnitedStates 10 CHAPTER2 OriginatorsandInvestorsoftheAssetSecuritizationMarket 19 EfficientFinancingforOriginatorswithAssetSecuritization 19 SatisfyingVaryingInvestorDemandswithAssetSecuritization 24 CultivatingInvestors:MatchingProductswithInvestment Demands 25 TheImportanceofUnderstandingtheUnderlyingAssets 25 ThreeTypesofInvestors 26 Yield-OrientedInvestors 26 Credit-OrientedInvestors 27 Maturity-OrientedInvestors 27 v vi CONTENTS CHAPTER3 IntermediaryParticipantsoftheAssetSecuritizationMarket 29 Attorneys 29 Accountants 31 GuarantorsandCreditEnhancers 31 Self-Insurance 32 BondInsurance 32 CorporateParentGuarantee 32 LetterofCredit 33 GSECreditGuarantee 33 CreditRatingAgencies 33 InvestmentBankers 35 CHAPTER4 NecessaryIngredientsandBenefitsofAssetSecuritization 39 TheNineNecessaryIngredients 39 SoundLoanOriginationProcess 40 ComplementaryLegalFramework 40 HighIntegrityofCash-FlowAnalysis 40 ClearlyDefinedAccountingRules 41 PrudentRiskEvaluation 42 Full-FledgedInvestmentBankingServices 42 MatureGovernmentDebtMarket 42 ActiveSecondaryMarket 43 BroadInvestorBase 44 BenefitsofAssetSecuritization 45 ImprovementintheFinancialOperationfortheOriginator 45 ProvisionofDiversifiedInvestmentProducts 45 LoweringtheBorrowingCost 46 PARTTWO ResidentialMortgagesandSecuritizationofResidentialMortgages 49 CHAPTER5 ResidentialMortgages 51 DescriptionofaResidentialMortgage 51 CharacteristicsofaFixed-RateMortgage 52 AmortizingaMortgage 53 Contents vii ComparisonofTwoMortgageswithDifferentMortgageRates 54 AlternativeMortgages 57 Adjustable-RateMortgages(ARMs) 57 Fifteen-YearFixed-RateMortgages 60 Graduated-PaymentMortgages(GPMs) 61 BiweeklyMortgages 62 BalloonMortgages 63 SecondMortgages 63 HomeEquityLoans(SubprimeMortgages) 63 HybridMortgages 64 ReverseAnnuityMortgages 65 CHAPTER6 TheResidentialMortgageMarket 67 TheOriginationofaResidentialMortgage 67 HousingandDebtRatios 68 CreditHistory 69 PropertyAppraisal 69 DownPayment 70 MortgageOriginators 71 MortgageServicers 72 MortgageInsurers 72 FHAMortgageInsurance 73 VALoanGuarantee 73 PrivateMortgageInsurance 73 TheDevelopmentoftheResidentialMortgageMarket 74 CHAPTER7 ResidentialMortgagePass-ThroughSecurities 79 MortgagePass-Throughs 79 GinnieMaeMortgagePass-Throughs 79 ConceptandTerminology 82 FreddieMacParticipationCertificates 87 FannieMaeMortgage-BackedSecurities 89 Private-LabelPass-Throughs 91 SubprimeMortgage-BackedSecurities 92 TradingandRelativeValueofPass-Throughs 92 TBATrade 93 ForwardSettlement 93 viii CONTENTS SpecifiedTrades 93 Bid–OfferPriceSpreads 94 BenchmarkCurrent-CouponYieldSpreads 95 CHAPTER8 MulticlassMortgagePass-Throughs 99 PrepaymentofMortgagePass-Throughs 99 TheNeedforMulticlassSecurities 100 CollateralizedMortgageObligations 102 TheConceptofAverageLife 102 RealEstateMortgageInvestmentConduits 103 IssuanceofAgency-GuaranteedMulticlassSecurities 104 VarietyofREMICClasses 105 PlannedAmortizationClasses(PACs) 106 Floaters 106 Interest-OnlyandPrincipal-OnlySecurities(IOsandPOs) 107 Z-Bonds 107 TheRise,Collapse,andRecoveryofREMICs 108 TheRiseofREMICs 108 TheCollapseofREMICs 108 TheRecoveryofREMICs 109 TradingandRelativeValue 111 CHAPTER9 Private-LabelMortgagePass-Throughs 115 TheGrowthofthePrivate-LabelPass-ThroughMarket 115 ATypicalTransaction 117 CharacteristicsoftheUnderlyingMortgages 119 LowLoan-to-ValueRatios 119 HighCreditQualityofBorrowers 120 TheCash-FlowStructure—MechanismofCredit Enhancement 120 Senior/SubordinatedCash-FlowStructure 120 BondInsurance 121 PoolInsuranceandCorporateGuarantee 122 LetterofCredit 122 CreditRatingCriteria 122 PerformanceofCreditRatings 124 Contents ix PrepaymentPattern 126 TradingandRelativeValue 126 CHAPTER10 SubprimeMortgage-BackedSecurities 131 EvolutionoftheSubprimeMortgageMarket 132 FeaturesofHomeEquityLoans 134 TwoTypesofHELs 134 UnderwritingCriteria—ThreeRatios 135 CreditQualityofBorrowers 136 DelinquenciesandDefaults 136 VaryingCharacteristicsofPoolsofSubprimeMortgages 137 ExamplesofTransactions 142 AnEarly-YearTransaction:RASC2003-KS4 143 MixedPoolsofFixed-andAdjustable-RateMortgages 143 MechanismofCreditEnhancement 143 BondInsurancetoEnhanceCredit 145 MaturityTranchingtoCapturePricingEfficiency 145 ALater-YearTransaction:ABFC2007-WMC1 146 UniquePrepaymentPattern 149 PerformanceofCreditRatings 149 TradingandRelativeValue 152 PARTTHREE SecuritizationofCommercialMortgagesandConsumerLoans 155 CHAPTER11 CommercialMortgage-BackedSecurities 157 TheGrowthoftheCMBSMarket 157 TheOriginationofaCommercialMortgage 159 TheLoan-to-ValueRatio 161 TheDebtServiceCoverageRatio 161 DefaultsandLossesofCommercialMortgages 161 ATypicalTransaction 164 CharacteristicsofUnderlyingMortgages 165 Re-UnderwritingMortgagesforCreditRatings 167 CreditandMaturityTranching 169 x CONTENTS PerformanceofCreditRatings 170 TradingandRelativeValue 171 CHAPTER12 Asset-BackedSecurities 175 TheGrowthoftheABSMarket 175 CreditCardABS 176 PatternofCashFlowoftheUnderlyingCollateral 176 ThreeTypesofIssuers 177 TransactionParameters 177 InvestorInterestandSellerInterest 177 RevolvingPeriodandAccumulationorAmortizationPeriod 179 PortfolioYield,DelinquencyRate,andLossRate 179 PaymentRateandPurchaseRate 180 CertificateRateandServicingFee 180 ExcessSpread 180 ATypicalTransaction 181 UnderlyingCollateral 181 CreditEnhancement 182 StressTestforCreditRatings 183 AutoLoanABS 184 PatternofCashFlowoftheUnderlyingCollateral 184 MajorTypesofIssuersandUnderlyingAssets 184 ATypicalTransaction 185 CashFlowandCreditEnhancement 186 Prepayment 187 PerformanceofCreditRatings 188 TradingandRelativeValue 189 CHAPTER13 CollateralizedDebtObligations 193 BasicConceptandMarketDevelopmentofCDOs 194 CDOsAreNotMutualFunds 195 DifferentStructuralTypesofCDOs 196 CashFlowCDOs 196 SyntheticCDOs 197 MarketValueCDOsandHybridCDOs 198 MotivationsforIssuingCDOs 199 Arbitrage 199 Contents xi CapitalRelief 199 RiskManagement 200 FacilitatingtheGrowthoftheAssetSecuritizationMarket 200 IncentivesforInvestinginCDOs 200 StructuringandCreditRatingCDOs 201 ASimulationModeltoStructureCDOs 203 TradingandRelativeValue 205 PARTFOUR TheCurrentAssetSecuritizationMarketintheUnitedStates andAsia-Pacific 209 CHAPTER14 TheCollapseandRecoveryProspectsoftheAssetSecuritizationMarket 211 HowtheMarketCollapsed 212 SloppyOriginationoftheUnderlyingAssets 212 OverlyZealousInvestmentBanking 213 ComplacentCreditRatings 214 IrresponsibleInvestingBehavior 215 ProspectsforRecovery 215 UnderlyingAssetOriginators:BacktoBasics 216 InvestmentBankers:ReduceLeverageandLook OutforInvestors 217 CreditRatingAgencies:StrengtheningRatingCriteriathrough Research 217 Investors:KnowWhatYouAreBuying 218 CHAPTER15 AssetSecuritizationinAsia-Pacific 221 AssetSecuritizationinJapan 221 MarketGrowthwithVarietyofUnderlyingAssets 221 ComplementaryFactorsinStrongGrowth 223 AssetSecuritizationinAustralia 224 RapidGrowthwithFocusedUnderlyingAssets 224 TappingtheWorldFinancialMarketsforFunds 225 TheStrongBasefortheAustralianRMBS 226 DifferentPatternsofAssetSecuritizationinJapanandAustralia 226 AssetSecuritizationinTaiwan 226 AssetSecuritizationinChina 229
The list of books you might like
