Subprime Mortgage Credit Derivatives
by LAURIE S. GOODMAN, SHUMIN LI, DOUGLAS J. LUCAS, THOMAS A. ZIMMERMAN, FRANK J. FABOZZI
Preface
The purpose of this book is to explain subprime mortgage credit and its numerous derivative instruments. We cover the determinants of mortgage credit, mortgage securitization, and all the derivatives of mortgage credit (that is, credit default swaps, the ABX and TABX indices, and credit default swaps on mortgage-backed CDOs). Moreover, we provide methodologies for projecting losses for a pool of mortgage loans and present models for the valuation of mortgage securitizations and derivatives of mortgage securitizations.
The 13 chapters of this book are divided into five parts:
- Part One: Mortgage Credit
- Part Two: Mortgage Securitizations
- Part Three: Credit Default Swaps on Mortgage Securities
- Part Four: Loss Projection and Security Valuation
- Part Five: The Subprime Meltdown
In Part One, we look at the underlying determinants of mortgage credit. This topic is essential for understanding the topics covered in the other four parts of the book. Chapter 1 provides an overview of the nonagency mortgage market. We look at the defining characteristics of jumbo prime, Alt-A, and subprime mortgages, describing how those characteristics have changed over time. In Chapter 2, we focus on first lien mortgages, paying particular attention to collateral characteristics. In addition, we describe the mortgage credit end game: The timeline from delinquency to foreclosure to real estate owned (REO) and the determination of loss severities. Our focus in Chapter 3 is on second lien mortgages ...