Securitization / Titrisation /
Titulización / Titolarizzazione / Securitisation

The Financier's Index

• Papers on Securitization published in The Financier and The Securitization Conduit

• Class Project (1/97)

• Class Project (11/97)

• Class Project (1/99)

• Class Project (Fletcher Law and Diplomacy)

• Excerpts from HEC seminar

• Class Notes (Password required)
  
  Interesting links related to the supply and demand sides of the securitization market.
  

• Chrysler Financial Corporation

• Federal National Mortgage Association (FNMA)

• Freddie Mac

• Government National Mortgage Association (GNMA)

• Student Loan Marketing Association (Sallie Mae)

• Credit Lyonnais

• France-Titrisation

• Moody's Investors Service

• Duff & Phelps Credit Rating

• FitchIBCA

• European Securitisation Forum

• Securitization.net

• Asset-Backed.com

• Search the SEC EDGAR data base with the name of the issuer (SPC or SPV) or the keywords "Securitization" , "Asset-Backed" or "Mortgage-Backed".
  

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Class Project (1/97)

Design and build a model using Excel or Lotus which can be used to simulate the cash flows of the four classes of securities issued by TITRIPHAR 06-96.  Your model must be flexible enough to illustrate the cash flows for the tenor of the securities across an array of prepayment, interest rate, default, and delinquency scenarios.  It is imperative that all of your assumptions are explicitly stated and explained.  You must also analyze how each class of securities responds to the simulated factors. In conclusion you should value one of the four classes of securities using the appropriate French government bond as a benchmark. 

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Class Project (11/97)

Investment banks have structured securities collateralized by 100 year corporate bonds. Discuss the mechanics and logic of refinancing century bonds via special purpose corporations. What are the sources of value in this type of transaction?  Your analysis should include a detailed case study of an actual transaction.  One example of this type of transaction is the Series 1997-USW-2 TRUST.     Your report should be as detailed and rigorous as possible.  Build a spreadsheet to support and illustrate your conclusions.  

The Class A-2 note issued by the trust pays zero interest or principal for twenty years.  In 2017 investors receive the assets of the trust which will be 80 year bullet bonds.  The A-2 notes are step-up bonds in the sense that they convert from zero coupon instruments to bonds that pay 7.95% per year once the trust dissolves.

Class Project (1/99)

PROBLEM I

You have a pool of fixed-rate mortgages with a WAC = 8.75%. Investors in MBS are not interested in receiving a fixed-rate Pass-Through (PT), so you create a Floater corresponding to 92% of the pool, with a coupon rate (Cf) = Libor + 65 bp.Servicing is .30% per year;

Cost of Credit Enhancement is .20% per year.

A) Based on the above, you must create an Inverse Floater corresponding to what percentage of the underlying pool?

B) What is the maximum coupon rate (Cif) you can pay on the Inverse Floater?

C) At what coupon rate (Cf) must the Floater be capped?/ (Floor and Ceiling)

PROBLEM II

You have a $40 Million pool of mortgages with a WAC = 10% and a WAM =30. You will create CMOs with 5 Tranches:

Tranche A = 20%, and a coupon rate = 8%

Tranche B = 25%, and a coupon rate = 8.25%

Tranche C = 25%, and a coupon rate = 8.50%

Tranche D = 25%, and a coupon rate = 8.75%

Z Tranche = 5%, with an accrual coupon rate = 9%.

Graph the cash flows of each tranche over time under the following scenarios:

cpr = 0%
cpr = 5%
cpr = 15%
cpr = 30%

Tufts University

The Fletcher School of Law and Diplomacy

Securitization

Anne Zissu and Charles A. Stone

Zfinance@interserv.com

Option 1:

1) Diagram GMAC's SWIFT securitization program.

a) The diagram should show all entities involved in the transaction and a brief description of their roles.

b) Your diagram of the scheme should show the flow of funds as well as the transfer of assets.

c) You should briefly discuss the capital structure of the SWIFT Trust and the composition of its assets.

2) Compare the value to GMAC of raising funds through its MTN program relative to financing assets through its SWIFT securitization program. If you can not quantify the value the MTN program to the securitization program discuss factors that you can not quantify and how they affect the relative value of securitization.

3) Diagram CETELEM'S MasterNoria securitization program. Discuss Cetelem's use f the program and compare Cetelem's cost of funding assets through the MasterNoria program to on balance sheet financing.

Option 2:

1) Diagram and analyze the securitization of sovereign debt by SACE (Sezione Speciale per l'Assicurazione del Credito all'Esportazione) via Optimum Finance B.V.  What is was the motivation of the securitization.  What value did SACE realize from this securitization.  Have similar securitization transactions been structured?   

The answers to option 1 or option 2 should not take more than 7 pages including diagrams.

Question 4 is mandatory.

4)

A pool of mortgages is securitized. You have the following information:

mo = number of mortgages in the pool at time zero;

Bo = balance of mortgage at time zero;

r = mortgage rate;

n = number of years over ehich the mortgage amortizes;

s = servicing fee as a percentage of outstanding pool;

g = cost of credit enhancement as a percentage of outstanding pool;

y = market rate (discount rate);

cpr = annual constant prepayment rate;

mbs = mortgage-backed security;

PT(t) = pass-through at time t;

IO(t) = interest only at time t;

PO(t) = principal only at time t;

mo = 100

Bo = $100,000

r = 10%

n = 30

(assume mortgage payments are made at the end of each year)

s = .25%

g = .25%

There are 4 possible scenarios:

Table 1

Scenarios	y	cpr	PT	IO	PO
1	6.5%	40%
2	8%	25%
3	9.5%	15%
4	11%	0%

I. Estimate PT(1) to PT(30) under the 4 scenarios, and graph them over time.

II. Estimate IO(1) to IO(30) under the 4 scenarios and graph them over time.

III. Estimate PO(1) to PO(30) under the 4 scenarios and graph them over time.

IV. What causes PT(1) to PT(30) to increases over time when cpr = 0?

IV. Price PT, IO and PO under the 4 scenarios and place your results in Table I.

V. What causes the price of PT to be exactly equal to $10 million when y = 9.5%?

VI. You created a portfolio made of Bonds and IOs with the characteristics from above. Over what range is the portfolio hedged against interest rate risk. At what market rate (y), the value of the IO starts to decrease?