Mortgage-Backed Securities by Hand: Pool Cash Flows, Prepayment Speeds, Servicing Strips, Weighted Average Life & Price Scenarios
Build a fictional mortgage pool's cash flows month by month: scheduled payments, prepayments at different speeds, what passes through to investors, average life and how price moves when borrowers refinance, with every cell checked as you go.
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About this course
In this course you build the cash flows of a fictional mortgage pool step by step. You compute the level monthly payment with PMT, split it into interest and scheduled principal and track the pool factor. You convert CPR into SMM and back, model prepaid principal and a seasoning ramp with speed multiples, and strip servicing and guarantee fees to get the investor cash flow. Then you compute the weighted average life at three speeds with SUMPRODUCT, price the pool with NPV at several yields, split principal between sequential tranches and finish with a rate-scenario dashboard with effective duration, negative convexity and a WAL chart.
Lessons
- The Mortgage Pool: Level Payments, Interest and Scheduled Principal Pro
- Prepayment Speeds: CPR, SMM and Prepaid Principal Pro
- Seasoning Ramps and Speed Multiples: 50%, 100%, 200% Pro
- Pass-Through Cash Flows: Servicing and Guarantee Fees Pro
- Weighted Average Life at Different Speeds Pro
- Price and Yield: Discounting the Pool's Cash Flows Pro
- Sequential Tranches: Who Gets the Principal First Pro
- Scenario Dashboard: Rates, Speeds, WAL and Negative Convexity Pro