Charles J. Corrado,
University of Auckland
Bradford D. Jordan,
University of Kentucky
| mortgage pass-throughs | Bonds representing a claim on the cash flows of an underlying mortgage pool passed through to bondholders.
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| mortgage-backed-securities (MBSs) | Securities whose investment returns are based on a pool of mortgages.
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| mortgage securitization | The creation of mortgage-backed securities from a pool of mortgages.
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| fixed-rate mortgages | Loan that specifies constant monthly payments at a fixed interest rate over the life of the mortgage.
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| mortgage principal | The amount of a mortgage loan outstanding, which is the amount required to pay off the mortgage.
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| mortgage amortization | The process of paying down mortgage principal over the life of the mortgage.
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| mortgage prepayment | Paying off all or part of outstanding mortgage principal ahead of its amortization schedule.
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| Government National Mortgage Association (GNMA) | Government agency charged with promoting liquidity in the home mortgage market.
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| fully modified mortgage pool | Mortgage pool that guarantees timely payment of interest and principal.
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| prepayment risk | Uncertainty faced by mortgage investors regarding early payment of mortgage principal and interest.
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| Federal Home Loan Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA) | Government-sponsored enterprises charged with promoting liquidity in the home mortgage market.
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| prepayment rate | The probability that a mortgage will be prepaid during a given year.
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| seasoned mortgages | Mortgages over 30 months old.
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| unseasoned mortgages | Mortgages less than 30 months old.
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| conditional prepayment rate (CPR) | The prepayment rate for a mortgage pool conditional on the age of the mortgages in the pool.
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| average life | Average time for a mortgage in a pool to be paid off.
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| Macaulay duration | A measure of interest rate risk for fixed-income securities.
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| effective duration | Duration measure that accounts for how mortgage prepayments are affected by changes in interest rates.
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| collateralized mortgage obligations (CMOs) | Securities created by splitting mortgage pool cash flows according to specific allocation rules.
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| interest-only strips (IOs) | Securities that pay only the interest cash flows to investors.
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| principal-only strips (POs) | Securities that pay only the principal cash flows to investors.
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| sequential CMOs | Securities created by splitting a mortgage pool into a number of slices, called tranches.
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| protected amortization class bond (PAC) | Mortgage-backed security that takes priority for scheduled payments of principal.
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| PAC support bond | Mortgage-backed security that has subordinate priority for scheduled payments of principal. Also called PAC companion bond.
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| PAC collar | Range defined by upper and lower prepayment schedules of a PAC bond.
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| cash flow yield | Yield to maturity for a mortgage-backed security conditional on an assumed prepayment pattern.
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2002 McGraw-Hill Higher Education