MBS MODULE MODULE 7A

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MBS MODULEMODULE 7A

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Creation of a GNMA Pass-Through SecurityA Three
Stage ProcessStage One

Promissory Note
Promissory Note
Commercial Bank
Mortgage Banker
Mortgages
(Line of Credit)
(Mortgages)
Cash
Cash
3
Creation of a GNMA Pass-Through SecurityA Three
Stage ProcessStage Two

Cash
Cash
Commercial Bank
Mortgage Banker
(Line of Credit)
Investor
Pass-Through
Release
Mortgages
Guarantee
Trustee
GNMA
4
Creation of a GNMA Pass-Through SecurityA Three
Stage ProcessStage Three

Cash
Cash
Mortgagor
Mortgage Banker
Investor
P, I, Repay
P, I, Repay
Reductions in Principal Obligations
Reductions in Principal Claims
5
Changes in Interest Rates and Prepayment Behavior

• Effect of Prepayments on the Cash Flows of
  Pass-Throughs

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Interest Rates and Mortgage Values

Value
100 Par
?
Pure P.V.
Coupon Rate
Interest Rate
7
Percent P.V. from Principal and Interest

Principal
80
20
Interest
200
100
300
PSA
8
Cash Flow _at_ Various PSA Spreads

?
Repay
0 PSA
50 PSA
120 PSA
200 PSA
Time
9

• I-Os/ P-Os
• TACs
• PACs