Tuesday, September 25, 2012

Federal Home Loan Banks are Major Players in Private Mortgage Backed Securities

Private-label MBS Collateral Statistics. 

The Federal Home Loan Banks generally purchase private-label Mortgage Backed Securities
rated triple-A (or its equivalent) by an NRSRO, such as Moody’s or S&P, at the time of purchase based on structural credit enhancements designed to withstand a significant increase in defaults combined with a sharp downturn in housing prices. Each Federal Home Loan Bank typically requires, at the time of purchase, credit enhancement that it believes to be above the amounts required for a triple-A credit rating by an NRSRO for non-agency mortgage-backed securities. 

Structural credit  enhancements include subordination and over-collateralization that are designed to absorb losses before an Federal Home Loan Bank will incur a loss on a security. Credit enhancement achieved through senior-subordinated features results in the subordination  of payments to junior classes to ensure cash flows are received by senior classes held by investors such as the Federal Home Loan Banks. In addition, monoline financial guarantors provide credit protection on some of the Federal Home Loan Banks’ securities in a form of secondary guarantees based on certain performance triggers.
See the“Monoline Insurance/Third-party Guarantors Credit Ratings and Outlook Table” for ratings and outlook status as of March 30, 2010. New loan modifications could affect the valuations and
credit enhancements of the FHLBanks’ mortgage-backed securities.


1 comment:

  1. Loan modifications allow the bank to make loan payments more affordable for borrowers. They may change interest rates, loan terms, loan balances, or other parts of the loan agreement.

    mortgage loan modification