Specified Trades

To be precise, these are trades in which the pool number and original face (principal amount outstanding is a function of prepayments and is not known until the next factor date) are known at the time of the trade. In practice, the candidates for specified trades are pools with prepayment stories that should command a premium over the TBA price for that program and coupon. Until the late 1990s, prepayment stories within the mainstay 15- and 30-year programs were largely limited to seasoned paper (originally indicated by WAM, so this was called WAM paper) and geographic concentrations. Also, off-the-run programs backed by buy-down loans, relo loans, prepayment penalty loans, and so forth can offer favorable theoretical and experienced prepayment profiles. Finally, pools with statistically low WACs for the particular coupon class (GSE and Ginnie I only) could trade as less callable.

In the late 1990s, low original loan size came into vogue with investors seeking less callable loans. Going a step beyond average loan size, originators began to segregate loans with balances below a specified limit in pools, warrant their characteristics, and market them in specified trades. This practice broadened to include other characteristics such as LTV ratio, credit score, property type, and occupancy. The actual trading of these pools helped to spur the agencies to expand disclosure to include OLTV ratio, loan purpose, servicer, credit score,

EXHIBIT 3-19

Anatomy of the Fixed Rate Agency Pass-Through Market

Fannie Mae

Freddie Mac

Ginnie Mae

(mm)

Iss Amt

RPB Amt

(mm)

Iss Amt

RPB Amt

(mm)

Iss Amt

RPB Amt

30-year

3,248,412.70

1,026,268.90

30-year Gold

2,021,692.70

601,619.10

GNI 30-year

1,514,271.10

212,046.70

15-year

979,496.60

367,614.10

15-year Gold

846,993.10

326,337.00

GNII 30-year

387,309.20

110,079.10

20-year

123,805.80

58,694.30

20-year Gold

133,804.50

66,641.40

GNI 15-year

94,980.10

21,793.60

10-year

45,696.60

27,179.90

10-year Gold

23,294.90

15,792.20

30-year Relo

11,356.40

3,011.90

30-year Relo

24,622.70

6,206.40

FHA/VA

26,926.00

2,863.00

As of February 2005

property type, and occupancy. Relative-value analysis of these pools is discussed in Chapter 41.

Theoretically, offerings of a wide smorgasbord of specified pools should alter the prepayment sensitivity of TBA securities. That is, by removing loans thought to possess "better convexity," they make the remaining universe going into cheaper-to-deliver TBA pools more negatively convex.

CHAPTER

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