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Asset Securitization: Theory and Practice

Book Description

Asset Securitization is intended for beginners and market professionals alike who are interested in learning about asset securitization—its concepts and practices. It is designed so that the readers will come away with a fundamental but comprehensive understanding of the asset securitization market. As such, the book aims to provide a review of the market's development, necessary framework, potential benefits, and detailed descriptions of major asset securitization products.

Part I of the book, which consists of four chapters, will discuss the fundamental concepts, the funding efficiency, the market participants, and the potential benefits of asset securitization. An analysis of mortgage finance will be provided in Part II, which consists of six chapters that cover a variety of topics from the description of many different types of residential mortgages to the securitization of different types of residential mortgages, including the now infamous sub-prime mortgages. Also included are important topics, such as prepayments, cash flow structure, maturity and credit tranching, and the trading and relative value of the various mortgage-backed securities. The three chapters in Part III will explain the other major asset securitization products, such as commercial mortgage-backed securities, credit card receivable-backed securities, auto loan-backed securities, and collateralized bond obligations. Part IV has two chapters: one reviews the collapse and the potential recovery of the asset securitization market, and the other describes the asset securitization efforts in Japan, Australia, Taiwan, and China.

Extensive tables and charts are presented to help illustrate a concept or describe a product. Neither analytical discussions nor investment strategies of the various asset-backed securities are included as they are not the focus of this book.

Table of Contents

  1. Cover
  2. Title Page
  3. Copyright
  4. Preface
  5. Introduction
  6. Part One: Basics of Asset Securitization
    1. Chapter 1: Asset Securitization: Concept and Market Development
      1. Basic Concept of Asset Securitization
      2. Development of the Asset Securitization Market in the United States
    2. Chapter 2: Originators and Investors of the Asset Securitization Market
      1. Efficient Financing for Originators with Asset Securitization
      2. Satisfying Varying Investor Demands with Asset Securitization
    3. Chapter 3: Intermediary Participants of the Asset Securitization Market
      1. Attorneys
      2. Accountants
      3. Guarantors and Credit Enhancers
      4. Credit Rating Agencies
      5. Investment Bankers
    4. Chapter 4: Necessary Ingredients and Benefits of Asset Securitization
      1. The Nine Necessary Ingredients
      2. Benefits of Asset Securitization
  7. Part Two: Residential Mortgages and Securitization of Residential Mortgages
    1. Chapter 5: Residential Mortgages
      1. Description of a Residential Mortgage
      2. Characteristics of a Fixed-Rate Mortgage
      3. Alternative Mortgages
    2. Chapter 6: The Residential Mortgage Market
      1. The Origination of a Residential Mortgage
      2. Mortgage Originators
      3. Mortgage Servicers
      4. Mortgage Insurers
      5. The Development of the Residential Mortgage Market
    3. Chapter 7: Residential Mortgage Pass-Through Securities
      1. Mortgage Pass-Throughs
      2. Trading and Relative Value of Pass-Throughs
    4. Chapter 8: Multiclass Mortgage Pass-Throughs
      1. Prepayment of Mortgage Pass-Throughs
      2. The Need for Multiclass Securities
      3. Collateralized Mortgage Obligations
      4. Real Estate Mortgage Investment Conduits
      5. The Rise, Collapse, and Recovery of REMICs
      6. Trading and Relative Value
    5. Chapter 9: Private-Label Mortgage Pass-Throughs
      1. The Growth of the Private-Label Pass-Through Market
      2. A Typical Transaction
      3. Credit Rating Criteria
      4. Performance of Credit Ratings
      5. Prepayment Pattern
      6. Trading and Relative Value
    6. Chapter 10: Subprime Mortgage-Backed Securities
      1. Evolution of the Subprime Mortgage Market
      2. Features of Home Equity Loans
      3. Varying Characteristics of Pools of Subprime Mortgages
      4. Examples of Transactions
      5. Unique Prepayment Pattern
      6. Performance of Credit Ratings
      7. Trading and Relative Value
  8. Part Three: Securitization of Commercial Mortgages and Consumer Loans
    1. Chapter 11: Commercial Mortgage-Backed Securities
      1. The Growth of the CMBS Market
      2. The Origination of a Commercial Mortgage
      3. Defaults and Losses of Commercial Mortgages
      4. A Typical Transaction
      5. Performance of Credit Ratings
      6. Trading and Relative Value
    2. Chapter 12: Asset-Backed Securities
      1. The Growth of the ABS Market
      2. Credit Card ABS
      3. Auto Loan ABS
      4. Performance of Credit Ratings
      5. Trading and Relative Value
    3. Chapter 13: Collateralized Debt Obligations
      1. Basic Concept and Market Development of CDOs
      2. CDOs are not Mutual Funds
      3. Different Structural Types of CDOs
      4. Motivations for Issuing CDOs
      5. Incentives for Investing in CDOs
      6. Structuring and Credit Rating CDOs
      7. A Simulation Model to Structure CDOs
      8. Trading and Relative Value
  9. Part Four: The Current Asset Securitization Market in the United States and Asia-Pacific
    1. Chapter 14: The Collapse and Recovery Prospects of the Asset Securitization Market
      1. How the Market Collapsed
      2. Prospects for Recovery
    2. Chapter 15: Asset Securitization in Asia-Pacific
      1. Asset Securitization in Japan
      2. Asset Securitization in Australia
      3. Different Patterns of Asset Securitization in Japan and Australia
      4. Asset Securitization in Taiwan
      5. Asset Securitization in China
  10. Appendix A: Analysis of Prepayment and Prepayment Rate
    1. Measurements of Prepayment Rate
    2. Two Fundamental Reasons for Prepayment
  11. Appendix B: Housing Price Appreciation and Mortgage Credit Performance
    1. The Importance of Housing Price Appreciation
    2. Credit Performance of Mortgages
  12. Appendix C: Fundamental Elements in Credit Ratings
    1. Evaluating Credit Quality of the Underlying Assets
    2. Reviewing Payment Structure and Cash-Flow Mechanics
    3. Analyzing Legal and Regulatory Risks
    4. Assessing Operational and Administrative Risks
    5. Examining Third-Party Dependencies
  13. Appendix D: The Collapse of the Asset Securitization Market
  14. Index