I have to clear this up cause I get confused: 1. MBS: Debt-securities with pools of debt obligations as collateral like passthroughs and mortgage bonds. Usually backed by 1-4 mortgages. Tranche structure is sequential. 2. CMO: A a repackaging of the repackaging, meaning essentially it’s an MBS of an MBS: It is the collateralizing of previously collateralized collateralizables. It can include nonagency (read:deadbeat) or agency MBS. Whereas, as noted in a recent post, the MBS cannot include nonagency debt, the CMO can. 3. CDO: Like a CMO, only it can include credit card receivables, etc., along with collateralized mortgages. Has senior, mezzanine, and junior tranches. What did I get right, and what did I leave out?
CDO can iclude much more than credit card receivables, if i remember corectly it can securitze almost all types of debt: - Corporate bonds (non investment grade) - emerging market debt - many others but i forget and dont have notes.
I might have confused CDO with ABS. I have not looked at this in a bit but now I know I need to review prompto…
you are right, mccgrey. It also includes corporate loan of commerial banks, distressed debts along with emerging market debt. Bottom line : you can take any kind of illiquid non-agency debt and convert it into liquid CDOs.
I thought MBS & CMO were pretty much the same. MBS is a type of CMO, but CMO’s aren’t necessarily securities of securities. They are securities backed directly by the mortgages themselves, just as with MBS.
MBS IS NOT a type of CMO. CMOs ARE collections of MBS. A CMO is really just a specialized CDO, which, as cfaboston pointed out, you can put anything into. Right now I’m in CLOs, which are collateralized loan obligations (the senior debt that cfaboston mentions).
Ok so MBS is actually a type of CDO. In a way, a CMO is a type of CDO. Anything can be a CDO.
No to MBS being a type of CDO, yes to the next two statements. A mortgage backed security is exactly what its name implies - it’s a bond backed by ~1000 individual mortgages. A CMO is a securitized product that is comprised of different tranches of MBS. My mortgage is bundled with a thousand other mortgages to create an MBS. A tranche of MBS is bundled with ~100 other tranches of different MBS deals to create a CMO.
Individuals loans are packaged together (securitized) to create a pool of loans. Passthrough securities (equal payments and sharing of risk) are created with the pool of loans as collatarel. CMOs are created from the passthroughs–difference is that they distribute prepayment and credit risk by tranches. For nonagency (noncomforming loans), they are not securitized and are created directly from the pool of loans, rather than from passthroughs. Honestly, I think an MBS is nothing more than a general term to describe all of these assets that have underlying mortgage property as collateral–reading 56 is named “mortgage backed sector of the bond market.”
If that’s what Schweser says than I defer to them, but in the industry “MBS” = “pass through”, and vice versa.
schweser is king for another 30 days