Page 69 - FINAL CFA SLIDES DECEMBER 2018 DAY 14

LOS 53.d: Describe types and characteristics of Session Unit 15:

residential mortgage loans that are typically 53. Introduction To Asset-Backed Securities
securitized., p.78

A residential (real estate) mortgage loan -a key characteristic is its loan-to-value ratio (LTV), the % of the
value of the collateral that is loaned to the borrower. The lower the LTV, the higher the borrower’s equity in
the property. Loan structures can be distinguished by:
• maturity,
• interest (fixed, variable or index referenced, convertible),

• amortisation of principal (full versus partial versus interest only;
• prepayment (full or partial),
• foreclosure (non recourse versus recourse)
tanties

LOS 53.e: Describe types and characteristics of residential mortgage-backed securities (RMBS), including mortgage pass-
through securities and collateralized mortgage obligations, and explain the cash flows and risks for each type, p.80

RMBS are ABS for which the collateral is specifically mortgages; there are two types in the USA -agency and
non-agency, depending on the issuer:
• Agency RMBS: these are issued by the Government National Mortgage Association (GNMA or Ginnie

Mae), the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage
Corporation (Freddie Mac).
• Ginnie Mae securities are guaranteed by GNMA and backed by the full faith and credit of the U.S.

government.
• Fannie Mae and Freddie Mac also guarantee their MBS but are government-sponsored enterprises

(GSE); not backed by the full faith and credit of the government; but nonetheless, still considered
as very high credit quality!