Capital Markets Examiner School, Providence, RI

Agency Mortgage Derivative Products

 Pools take principal and interest and pass it along to investors based on their ownership

 Mortgage Derivative Products create a structure that distributes the principal and interest payments based on the characteristics of each tranche in the structure

Agency Mortgage Derivative Products

 Understanding the overall structure and the characteristics of your tranche are vital to understanding your investment and how/when/if you will get paid

 While these products are not considered credit-related, diligence is required to understand the IRR and liquidity risks from potentially volatile payment streams  Does the bank have the capability to manage this complexity?