Page 70 - FINAL CFA SLIDES DECEMBER 2018 DAY 14
P. 70
Session Unit 15:
53. Introduction To Asset-Backed Securities
Agency RMBS are mortgage pass-through securities, representing a claim on the cash flows from a pool of
mortgages, which can be any number, which each in the pool referred to as a securitized mortgage; these
could have different maturities and mortgage rates.
• Weighted average maturity (WAM) of the pool = weighted average of the final maturities of all the
constituent mortgages, weighted by each mortgage’s outstanding principal balance as a % of the total
outstanding principal value of all the mortgages.
• Weighted average coupon (WAC) of the pool =weighted average of the interest rates of all the mortgages
tanties
in the pool.
The investment characteristics of mortgage pass-through securities are a function of their cash flow features
and the strength of the guarantee provided.
In order to be included in agency MBS pools, loans must meet certain criteria, including:
• minimum percentage down payment,
• a maximum LTV ratio,
• maximum size, Conforming loans are set to meet this
• minimum documentation required, and criteria and non-conforming loans do not!
• insurance purchased by the borrower.
Non-Agency RMBS are non-conforming mortgages; these are typically securitized by private companies!
