Differences Between The Fifth And Sixth Editions

Money managers must justify their management and transaction costs to clients. Consequently, all money managers eventually must demonstrate to their clients how much value they have added to portfolio performance above and beyond what could have been achieved by employing a lower-cost buy-and-hold strategy. As the editor of The Handbook of Mortgage-Backed Securities, I am effectively the portfolio manager of the assets of this book—the chapters. The sixth edition must justify to my current clients (those who purchased the fifth edition of the Handbook) why they should not follow a buy-and-hold strategy of simply continuing to use the fifth edition and reduce advisory fees and transaction costs (i.e., the cost of this book). In short: What value has been added to the fifth edition?

The differences between the fifth and sixth editions are summarized in the following section. The number of chapters has been increased from 42 to 54. Thirty-six chapters are new. Consequently, this book can be characterized as a new book, reflective of the dynamic changes that have occurred in this market in terms of new product development (particularly nonagency mortgage-backed securities) and advances in technologies since the publication of the fifth edition in 2001.

Summary of Differences Between the Fifth and Sixth Editions

The fifth edition has 42 chapters and an appendix divided into the following seven sections:

  1. Mortgages and Pass-Through Securities
  2. Stripped Mortgage-Backed Securities and Collateralized Mortgage Obligations
  3. Credit-Sensitive Mortgage-Backed Securities
  4. Prepayment Modeling
  5. Valuation Techniques, Relative-Value Analysis, and Portfolio Strategies
  6. Commercial Mortgage-Backed Securities
  7. Non-U.S. Mortgage-Backed Products

The sixth edition has 54 chapters divided into the following seven sections:

  1. Mortgage-Backed Securities (MBS) Products and the Mortgage Market
  2. Alternative Mortgage Products
  3. Mortgage Derivatives: CMOs and Stripped MBS
  4. Prepayment Models and Behavior
  5. Portfolio Management Tools and Techniques
  6. Hedging Tools and Approaches
  7. Commercial Mortgage-Backed Securities

The following 37 chapters are new: 2. MBS Investors

  1. Defining Nonagency MBS
  2. Credit Enhancements for Nonagency MBS Products
  3. Understanding the Prospectus and Prospectus Supplement
  4. Waterfall Cash-Flow Mechanics in European RMBS
  5. Exploring the MBS/ABS Continuum: The Growth and Tiering of the Alt-A Hybrid Sector
  6. Alt-A Mortgages and MBS
  7. Fixed-Rate Alt-A MBS
  8. Hybrid Adjustable-Rate Mortgages (ARMs)
  9. Hybrids: Product, Performance, Investor Base, and Frameworks to Assess Relative Value
  10. Interest-Only ARMs
  11. Residential Asset-Backed Securities
  12. Customized Mortgage-Backed Securities
  13. The Prepayment and Credit Characteristics of Reperforming FHA/VA Loans
  14. Agency Prepayment Model: Modeling the Dynamics of Borrower Attributes
  15. Loan-Level Prepayment Models
  16. Analyzing Specified MBS Pools Using Agency Enhanced Data and Active-Passive Decomposition
  17. A Prepayment Model for Hybrid Mortgages
  18. Modeling Nonprime Mortgage Prepayment, Delinquency, and Default
  19. Risk-Neutral Prepayment Modeling and Valuation with prOAS
  20. An Option-Theoretic Approach to MBS Valuation
  21. Managing Against the Lehman Brothers MBS Index: MBS Index Prices
  22. Managing Against the Lehman Brothers MBS Index: MBS Index Returns
  23. Dollar Rolls
  24. Uncovering the Risk-Adjusted Carry in MBS
  25. Mortgage Credit Quantified
  26. Specified Pool Trades: Ranking the Alternatives
  27. Analysis of Cleanup Calls
  28. A Three-Factor Approach for Hedging Mortgage-Backed Securities
  29. Mortgage Options
  30. Mortgage Prepayment Derivatives
  31. Mark-to-Market Methodology, Mortgage Servicing Rights, and Hedging Effectiveness
  32. Prepayment-Linked Notes
  33. The Impact of Structuring on CMBS Bond Class Performance
  34. Investment Characteristics of GNMA Project Loan Securities 54. Cash-Flow CDOs for CMBS Investors

The following five chapters were substantially revised: 1. An Overview of Mortgages and the Mortgage Market 18. Prepayment-Penalty Mortgage-Backed Securities

  1. Approaches for Measuring the Duration of Mortgage-Related Securities
  2. Duration and Average-Life Drift of CMOs 46. Hedging IOs and Mortgage Servicing

CONTRIBUTORS

Steven Abrahams

Senior Managing Director Bear, Stearns & Co. Steve Banerjee

Executive Vice President Countrywide Securities Corporation Alexander Batchvarov Managing Director International Structured Product

Research Merrill Lynch International William S. Berliner

Executive Vice President Countrywide Securities Corporation

Anand K. Bhattacharya

Managing Director Countrywide Securities Corporation Jeffrey D. Biby

Managing Director Lehman Brothers Inc. Arjune Budhram Associate

Credit Suisse First Boston Michael Bykhovsky

President and CEO

Applied Financial Technology, Inc.

Michael Corsi

Vice President Mortgage Strategy RBS Greenwich Capital

Andrew Davidson

President and Founder Andrew Davidson & Co., Inc.

William Davies

Vice President

International Structured Product Research Merrill Lynch International Altynay Davletova Vice President

International Structured Product Research Merrill Lynch International Kenneth P. Dunn

Dean and Professor of Financial Economics Tepper School of Business Carnegie Mellon University Frank J. Fabozzi

Frederick Frank Adjunct Professor of Finance School of Management, Yale University

Christopher Flanagan

Managing Director

J.P. Morgan Securities, Inc.

Arthur Q. Frank

Director, MBS Research

Nomura Securities International, Inc.

Laurent Gauthier

Executive Director Morgan Stanley

John Gibson

Director

Structured Finance Group PricewaterhouseCoopers

Bennett W. Golub

Managing Director BlackRock, Inc. Laurie S. Goodman

Co-Head of Global Fixed Income Research UBS

Yogesh Gupta

Director

Structured Finance Group PricewaterhouseCoopers Brian Hargrave Vice President Lehman Brothers Inc. Duane C. Hewlett Vice President

Delaware Investment Advisers Ricardo Horowicz

Vice President, Fixed Income Research Countrywide Securities Corporation

David S. Horowitz

Managing Director Morgan Stanley Asset Management David P. Jacob

Managing Director

Nomura Securities International, Inc.

Paul Jacob

Executive Vice President Countrywide Securities Corporation Adama Kah

Vice President Credit Suisse First Boston Andrew Kalotay President

Andrew Kalotay Associates, Inc.

Thomas Knox

Director

Structured Finance Group PricewaterhouseCoopers Peter Leffler FitchRatings Credit Products

Alexander Levin

Director, Valuation Development Andrew Davidson & Co., Inc.

Gary Li

Senior Vice President HSBC Jonathan Lieber

Senior Vice President Countrywide Securities Corporation

David Liu

Director, Mortgage Strategy Group UBS Linda Lowell

Principal

Lowell Consulting

Tim Lu

Research Analyst

Nomura Securities International, Inc. David M. Lukach

Partner

Structured Finance Group PricewaterhouseCoopers Michael M. Luo

Executive Director Morgan Stanley John Malysa FitchRatings Credit Products Steven V. Mann

Professor of Finance Moore School of Management University of South Carolina

Satish Mansukhani

Director

Credit Suisse First Boston James M. Manzi

Assistant Vice President

Nomura Securities International, Inc.

John McElravey

Structured Products Research AAM Susan S. Merrick

FitchRatings CMBS

Srinivas Modukuri

Senior Vice President Lehman Brothers Inc. Cyrus Mohebbi

Managing Director HSBC

Adjunct Professor New York University Christopher Muth

Research Analyst J.P. Morgan Securities, Inc. Philip O. Obazee Vice President

Delaware Investment Advisers

Bruce D. Phelps

Senior Vice President Lehman Brothers

Joseph R. Prendergast

Principal and Director of Mortgage

Research Smith Breeden Associates

Mu'taz Qubbaj

Associate

Credit Suisse First Boston Scott F. Richard

Managing Director Morgan Stanley Asset Management Adam Rilander Vice President Bear, Stearns & Co.

Andrew Aymen Samawi Chief Executive Officer BroadReach Financial Group

Anthony B. Sanders

Professor of Finance and John W. Galbreath Chair

The Ohio State University Glenn Schultz

Vice President J.P. Morgan Securities, Inc. Roberto M. Sella

Managing Director Morgan Stanley

William L. Smith, Jr.

Director, Mortgage Research UBS

V. S. Srinivasan

Senior Managing Director Bear, Stearns & Co.

Jennifer Story

FitchRatings CMBS Dan Szakallas

Director, Prepayment Modeling Andrew Davidson & Co., Inc. Wei Wang

Executive Vice President Countrywide Securities Corporation

Dale Westhoff

Senior Managing Director Bear, Stearns & Co. Todd White

Managing Director HSBC Deane Yang

Professor

Polytechnic University

Sree Sudha Yerneni

Managing Director BlackRock, Inc. Raymond Yu

Portfolio Manager

Providence Investment Management

Thomas Zimmerman

Executive Director Mortgage Strategy Group UBS

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