Assessing Value and Risk — Europe
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Residential Mortgage Backed Securities (RMBS) are a major source of finance for financial institutions which provide residential mortgages. The product had a volatile performance over the 2009 recession, undermining confidence in the product’s predictability. This two-day course covers the structures around RMBS, the importance of understanding the underlying mortgage book, and the ways in which risk mitigation is sized, and structured.
Key Learning Outcomes:
- Introduction to the methodology for analyzing the risks in different RMBS deals
- Discover the kay variables within the mortgage pool which drive losses
- Learn about credit enhancement, water falls, and structural elements which protect investors from a higher probability of loss
Analytic approach to credit
- A structured approach to analysis: purpose, payback, risks and structure
- Applying the approach to true sale and, where appropriate, synthetic RMBS
- Originator and investor motivations / sources of repayment
- Historical and current perspectives
- The need for vigilance: opportunities and threats in current climate.
Risks to Repayment
- Understanding RMBS collateral features: prime, non-conforming, U.S. vs. Europe
- Key variables which will impact the likelihood of default and severity of loss
- Stressing historical performance data: sizing gross credit enhancement
- Model approach: loan by loan analysis to determine loss levels
- Adjustments to assumptions: why and to what extent
- Cash flow modelling: the impact of timing on stress scenarios
- Deriving gross credit enhancement levels.
- Who how, where, why, and for how long?
- Underwriting procedures and policies
- How the business model might impact origination / securitisation.
- Types of servicers and their roles: primary, master and special
- Servicer ratings: why, how and impact on credit enhancement
- Creditworthiness and the business model
- Third party servicers and replacement risk.
- Substitution and replacement: eligibility criteria
- Access to liquidity: evaluating liquidity providers and alternative structures
- Swaps and caps: mitigating risk and guaranteeing excess spread
- Trust structures: triggers, funding/seller shares, loan substitution.
- Defining the reference pool
- Transferring risk via a CDS
- Credit events and loss determination
- Note collateral: de-linking the risk.
- Isolation of assets
- Events of default, reps and warranties.
- Current market conditions: impact on spreads across asset types, tranches and regions
- Benchmarking returns
- Moving down the curve: value versus risk (current perspectives).
- Surveillance: collateral, servicer / origination and counterparty
- Interpreting performance to identify early warning signals
- Credit trends: understanding and anticipating pockets of risk
- Differentiating between markets and their relevant industry standards
- Potential impact of regulatory and industry review of reporting standards.
Who should attend
The RMBS course is suitable for anyone with a year or two of banking experience, in any area. While some of the concepts might be new, the course strives to make the subject easily digestible and memorable, and so it could be attended by anyone with an interest in RMBS, whether an analyst, investment manager, lawyer, operations manager, portfolio servicer, or senior risk officer.