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A Risk Management Model for MBS Issuers

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Author Info
Eddie Lam () (CITIC Ka Wah Bank and Consultant of the Korea Mortgage Corporation)
Abstract

Most previous studies that developed Mortgage-backed Securities (MBS) models focused on investors, but the model that is presented here is specifically for MBS issuers. I developed a risk management tool for issuers and guarantors to monitor their MBS portfolios. The model projects the cash inflow of mortgages and the cash outflow to MBS; alters the traditional model by introducing decision trees; combines the prepayment, delinquency, default, and recovery of delinquency into a single model; and uses a simulation program with multiple path generation to develop a model for issuers to manage their MBS portfolios. According to the results of the model, issuers can manage the risk level of their portfolios by determining the Collection Account Balance, the Overcollateralization Ratio, the Net Residual Value, and the Liquidity Advance. The final part of this paper provides suggestions on risk management for MBS issuers.

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Publisher Info
Article provided by Asian Real Estate Society in its journal International Real Estate Review.

Volume (Year): 5 (2002)
Issue (Month): 1 ()
Pages: 169-195
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:ire:issued:v:05:n:01:2002:p:169-195

Contact details of provider:
Postal: Asia Real Estate Society, 51 Monroe Street, Plaza E-6, Rockville, MD 20850, USA
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Web page: http://www.asres.org/

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Postal: Asian Real Estate Society, 51 Monroe Street, Plaza E-6, Rockville, MD 20850, USA
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Web: http://www.asres.org/

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Related research
Keywords: Mortgage-backed securities; risk management; MBS issuers; cash flow projection; Korea Mortgage Corporation;

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Find related papers by JEL classification:
L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Peter Linneman & Susan Wachter, 1989. "The Impacts of Borrowing Constraints on Homeownership," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(4), pages 389-402. [Downloadable!] (restricted)
  2. Mark A. Sunderman & Roger E. Cannaday & Peter F. Colwell, 1990. "The Value of Mortgage Assumptions: An Empirical Test," Journal of Real Estate Research, American Real Estate Society, vol. 5(2), pages 247-258. [Downloadable!]
  3. Alan L. Lewis, 2000. "Option Valuation under Stochastic Volatility," Option Valuation under Stochastic Volatility, Finance Press, number ovsv, September.
  4. Kerry D. Vandell, 1993. "Handing Over the Keys: A Perspective on Mortgage Default Research," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 21(3), pages 211-246. [Downloadable!] (restricted)
  5. Dennis R. Capozza & Dick Kazarian & Thomas A. Thomson, 1997. "Mortgage Default in Local Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 25(4), pages 631-655. [Downloadable!] (restricted)
  6. Kau, James B, et al, 1995. "The Valuation at Origination of Fixed-Rate Mortgages with Default and Prepayment," The Journal of Real Estate Finance and Economics, Springer, vol. 11(1), pages 5-36, July.
  7. Phillips, Richard A & Rosenblatt, Eric & VanderHoff, James H, 1996. "The Probability of Fixed- and Adjustable-Rate Mortgage Termination," The Journal of Real Estate Finance and Economics, Springer, vol. 13(2), pages 95-104, September.
  8. Eduardo S. Schwartz & Walter N. Torous, 1993. "Mortgage Prepayment and Default Decisions: A Poisson Regression Approach," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 21(4), pages 431-449. [Downloadable!] (restricted)
  9. Dennis R. Capozza & Dick Kazarian & Thomas A. Thomson, 1998. "The Conditional Probability of Mortgage Default," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 26(3), pages 259-289. [Downloadable!] (restricted)
  10. Fang-xiong Gong & Joseph Gyourko, 1998. "Evaluating the Costs of Increased Lending in Low and Negative Growth Local Housing Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 26(2), pages 207-234. [Downloadable!] (restricted)
  11. Chan, Sewin, 1996. "Residential mobility and mortgages," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 287-311, June. [Downloadable!] (restricted)
  12. Ambrose, Brent W & Buttimer, Richard J, Jr & Capone, Charles A, 1997. "Pricing Mortgage Default and Foreclosure Delay," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 314-25, August.
  13. Kau, James B, et al, 1993. "Option Theory and Floating-Rate Securities with a Comparison of Adjustable- and Fixed-Rate Mortgages," Journal of Business, University of Chicago Press, vol. 66(4), pages 595-618, October. [Downloadable!] (restricted)
  14. Ambrose, Brent W & Capone, Charles A, Jr, 1996. "Cost-Benefit Analysis of Single-Family Foreclosure Alternatives," The Journal of Real Estate Finance and Economics, Springer, vol. 13(2), pages 105-20, September.
  15. Chow, Ying-Foon & Huang, Charles & Liu, Ming, 2000. "Valuation of adjustable rate mortgages with automatic stretching maturity," Journal of Banking & Finance, Elsevier, vol. 24(11), pages 1809-1829, November. [Downloadable!] (restricted)
  16. Brent W. Ambrose & Charles A. Capone, 1998. "Modeling the Conditional Probability of Foreclosure in the Context of Single-Family Mortgage Default Resolutions," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 26(3), pages 391-429. [Downloadable!] (restricted)
  17. John V. Duca & Stuart S. Rosenthal, 1993. "Borrowing constraints, household debt, and racial discrimination in loan markets," Research Paper 9312, Federal Reserve Bank of Dallas. [Downloadable!]
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