Cash Flow Modelling For Securitisation - RMBS
The module will review Fitch's collateral analysis of the German RMBS asset class using their latest criteria - the German mortgage market is the most similar to the Continental market in terms of market practice and product The module will look at the theory behind Fitch's analysis including the concept of base default probability and how adjustments are calculated based on the characteristics of both the individual assets as well as the pool diversity. In addition the derivation of the different loss severities are discussed in some detail.
The delegates will then look at an Excel based model that has been independently developed to analyse a pool of German residential mortgages and derive gross credit enhancement levels for different investment grade ratings. The second part of the session looks at how to use the different credit enhancement sizing for the different rating levels can be used to both tranche and price mortgage risk.
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Introduction to UK Residential Mortgage Securitisation (1 Day - Theory and Practical)
The module will review Fitch's analysis of the UK RMBS asset class using their latest criteria (July 2005). The module will look at the theory behind Fitch's analysis including the concept of base default probability and how adjustments are calculated based on the characteristics of both the individual assets as well as the pool diversity. In addition the derivation of the different loss severities are discussed in some detail. The delegates will then look at an Excel based model that has been independently developed to analyse a pool of UK residential mortgages and derive gross credit enhancement levels for different investment grade ratings. The second part of the session looks at how to use the different credit enhancement sizing for the different rating levels can be used to both tranche and price mortgage risk.
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Introduction to Dutch Residential Mortgage Securitisation (1 Day - Theory and Practical)
The module will review Fitch's analysis of the Dutch RMBS asset class using their latest criteria (July 2005). The module will look at the theory behind Fitch's analysis including the concept of base default probability and how adjustments are calculated based on the characteristics of both the individual assets as well as the pool diversity. In addition the derivation of the different loss severities are discussed in some detail. The delegates will then look at an Excel based model that has been independently developed to analyse a pool of UK residential mortgages and derive gross credit enhancement levels for different investment grade ratings. The second part of the session looks at how to use the different credit enhancement sizing for the different rating levels can be used to both tranche and price mortgage risk.
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Standard & Poor's Approach to UK Residential Mortgage Securitisation (3 hours - Theory and Practical)
The module looks at the Standard & Poor's methodology for undertaking a collateral analysis for a pool of UK residential mortgages. We examine the concept of a benchmark mortgage pool and how this is used to calculate a foreclosure frequency and loss severity. The module then progresses to work though how adjustments are made to non benchmark pools in the form of increases to these numbers. Various features are incorporated including LTV, credit rating, property type, income verification, interest rate charging mechanism, debt-to-income ratio, etc.. Afterwards the module requires the users to develop an Excel module using a variety of tools and notes to perform the analysis on a pool of mortgage loans.
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Introduction to RMBS Cash flow Modelling (3 hours - Theory and Practical)
In this module, the delegates will use a pre-designed Excel model to test a multi-tranche structure against a range of default probability and loss severity for each rating level - this allowing them to optimise the capital structure. During the practical, we analyse Fitch Ratings and Standard & Poor's approach to cash flow programming for residential mortgages included interest rate and prepayment stresses. In addition, the delegates will analyse the different areas of stressing including delinquencies, default vectoring, different definitions of loss severity and reinvestment rates. Further time is allocated to look at the role of Principal Transfer Ledgers and Principal Loss Ledgers.
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Moody's Approach to Rating UK Residential Mortgage Backed Securities (2 hours - Theory and Practical)
Although Moody's have developed their MILAN mortgage evaluator model, the methods used are based on the current research pieces. We examine the expected loss approach and how it is applied in the evolution of ratings. In addition, the model looks at the lognormal distribution and how it is used for ABS and RMBS structures. As with Standard & Poor's, Moody's Investors Service use a benchmark credit enhancement method in order to derive the base level. This is a 10 stage which looks at (1) Benchmark credit enhancement (including MIG) (2a) Originator market position credit enhancement factor (CEF) (2b) Servicer function CEF (3a) Interest charging adjustment (3b) Interest rate adjustment (3c) underwriting adjustment (3d) repayment adjustment (4) Regional concentration adjustment (5) Property value adjustment, (6) Loan purpose adjustment (7) Income multiple adjustment (8) Property usage adjustment (9) House price change (10) Seasoning adjustment. " Moody's Lognormal Distribution - (Theory and Practical 3 Hours) - Moody's uses a number of probability distributions for different asset types. In the case of consumer ABS and RMBS, the lognormal distribution is deemed to be the most appropriate. The theory looks at how a lognormal distribution can be derived from the mean and standard deviation of the expected losses or defaults under the portfolio distributions. The practical picks up where the theory leaves off and allows the delegates to utilise a working cash flow programme showing how the lognormal theory interacts with a the probability weighted loss curve. Extremely useful for all those wishing to model for Moody's ABS and RMBS portfolios.
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Moody’s Lognormal Distribution – (Theory and Practical 3 Hours)
Moody’s uses a number of probability distributions for different asset types. In the case of consumer ABS and RMBS, the lognormal distribution is deemed to be the most appropriate. The theory looks at how a lognormal distribution can be derived from the mean and standard deviation of the expected losses or defaults under the portfolio distributions. The practical picks up where the theory leaves off and allows the delegates to utilise a working cash flow programme showing how the lognormal theory interacts with a the probability weighted loss curve. Extremely useful for all those wishing to model for Moody’s ABS and RMBS portfolios.
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Construction of Excel Cash Flow Model for UK RMBS (Practical 12 hours)
This module will take approximately 2 days to complete. The delegates will be asked to prepare for this exercise by reading a pre-sale report and extracts from an offering circular for GMAC-RMAC 2004. This will include programming for (i) amortising Reserve Funds and liquidity facilities (ii) calculating returns for MERCS and Residuals (iii) using up to 12 different mortgage products and (iv) non-conforming mortgages. The object is to reverse engineer a fully working Excel cash flow programme that would go to and beyond what would be required for rating agency purposes. Given that a programme such as this would take some 5-7 days to construct under normal circumstances, the pace is thorough yet demanding. The delegates will be provided with a template worksheet which contains minimal formulas and formatting. Equipped with a course book containing the theory behind each line of programming as well as the correct formula's, they will be taken through building an RMBS programme step by step by the instructor. In order to ensure that each delegate is keeping pace with the rest of the class the instructor will distribute versions of his "programme in progress" at key points of the session. The recent deal has been chosen because of its relevance in the RMBS market as well as certain innovative features. All in all one of the most instructive object lessons in cash flow programme available.
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Pricing a Residential Mortgage using a Discounted Cash Flow Method (Theory and Practical 2.5 hours)
This module has been designed to capture the increased interest in "whole loan pricing" that has recently grown up beside the securitisation market. The module demonstrates using a single loan how to price the cash flows over its entire life. The module uses number of assumptions including: the expected loss curve, the expected prepayment curve and the forward swap curve to produce a series of cash flows that can be discounted. The module requires a basic knowledge of VBA