Wednesday, January 2, 2008

MBS - Generic or TBA, Pool Specific

--Investors can choose generic or pool-specific deals --Every agency pass-through pool is unique, distinguished by size, prepayment features, geographic concertration or dispersion --most agency passt-through securities trade on a generic or to-be-announced (TBA) basis. Buyer and seller agree on the type of security, coupon, face value, settlement date, price at the time of trade, but do not specifiy actual pools to be delievered. --TBA trading improve the liquidity of similar pass-through mortgage pools by making them fungible (interchangable). In effect, agency MBS trade as though their primary characterics - Weighted Average Coupon (WAC), WAM(maturity) - are equal to the average of all other similar pools outstanding. Most TBA trades are composed of securities from several pools, their distinct charcteristics tend to blend together into an approximation of generic securities. --mortgage originators can sell TBA to secondary market in securitized form. Most mortgage applications engaged mortgage originators to interest rate risk prior to the closing of the loan deals and the sell of the deal. Actual MBS pools can be formed only after mortgage closes. Risks of keeping them in the pipeline include withdraw, ..., changing of loan amount. Originators usually sell them into the forward market for TBA delievery months in the future. TBA trading allows orignators to sell prospective mortgage securities before they know specific characterics of the pool. Without TBA, originators have to hedge using Treasuries or MBS options. --Generic coupon is grouped by issue year and vintage

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