non-agency MBS and CMO

--MBS is debt obgliation where issuers retain the onwership of underlying assets. Passthrough is a pro rata owernship interest, buyers retain the assets. ---non-agency passthrough, a pro rate ownership interest of a trust that pool together conventional loans that fail to meet size limit or other requirements. It needs credit enhancements, internal (senior/sub) or external. a.Credit enhancement on Jumbo A deals typically run three to four percent of the total. b.Credit enhancement on ALT A deals usually run four to seven percent. c.Credit enhancement can range from seven percent all the way up to twenty percent --non-agency CMO can be created from pool of passthrough or unsecuritized mortgage loans. But it is uncommon to have a nonconforming loan securitized to passthrough and then the passthrough carved up to a CMO. Usually a non-agency CMO is carved directly from unsecuritized (conventional) whole loans --non-agency MBS usually refers to non-agency passthrough or non-agency CMOs. --how CMO differs from MBS a.CMO lower level of collateral because CMO is evalued base on the PV of cashflows of mortgages not their market value, so no worry like MBS about the marketability or revaluation of collateral; b.senior/sub in CMO refers to cashflow distribution where non-agency passthrough structure is used for credit enhancements, cushining loss. c.CMO has high level of safety and credit ratings, usually AAA References: 1.US Master Bank Tax Guide http://books.google.com/books?id=lLw8sU0uzEUC&pg=PA113&lpg=PA113&dq=non-agency+passthrough&source=web&ots=TYZ0zXU0fA&sig=PhvifEtFpFPDbhunwaYdG5AV0F4&hl=en&sa=X&oi=book_result&resnum=8&ct=result#PPA118,M1 2.http://www.amffunds.com/html/TP04-amf_quart306.pdf