TheSecond Edition ofThe Securitization Markets Handbook is a valuable resource for both experienced money managers trying to put a securitization strategy into place as well as newcomers looking to acquire a broad and strong foundation in this discipline. This edition takes a close look at the pre- and post-crash mortgage market and the mortgage-backed securities based on those mortgages, as well as other asset-backed securities including commercial paper or credit cards.

The crash of the subprime market and the failure of the asset-backed markets offer an opportunity to learn about banking finance, specifically off-balance sheet finance, and the many costly mistakes that resulted in one of the most severe downturns in financial markets. With this book, you'll discover why certain mortgage and asset-backed securities imploded and others didn't. This new edition examines why the market failed and how the next crisis can be averted or made less severe. It also explains why securitization remains a primary source of capital for the mortgage market, credit card market, home equity market, auto loan market, and segments of the commercial paper market.

Updated to reflect the current market environment, theSecond Edition ofThe Securitization Markets Handbook offers clear, comprehensive guidance to these complex markets.

CHARLES AUSTIN STONE, PHD, is a Professor of Finance and the Deputy Chairman of the MS in Business Economics program at Brooklyn College, CUNY. He is a leading expert in asset-backed securities, has edited several books on the subject, and coauthored, with Anne Zissu, the first edition of this book. Stones research has appeared in leading academic journals, including theJournal of Real Estate Finance and Economics, FNMAsJournal of Housing Research, the Journal of Deriva-tives, the Journal of Applied Corporate Finance, the Journal of Risk Finance, the Journal of Alternative Investments, and Financial Markets, Institutions, and Instruments. He has been invited to lecture on securitization at various major financial and academic institutions.

ANNE ZISSU, PHD, is the Chairperson of the Department of Business at Citytech, CUNY, and a Research Fellow at NYU Poly in the Department of Financial and Risk Engineering. She is a leading expert in asset-backed securities and senior life settlements, and has edited several books on the subject. Her research has appeared in leading academic journals, including theJournal of Real Estate Finance and Economics, FNMAsJournal of Housing Research, the Journal of Derivatives, and many others. Professor Zissu has been invited to lecture on securitization at various major financial and academic institutions. Professor Zissu has acted as an expert witness on a number of cases related to securitization and senior life settlements.

Introduction xi

PART ONE Key Structures and Cash Flow Dynamics

CHAPTER 1 Mortgage-Backed Securities: Origins of the Market 3

CHAPTER 2 Price Dynamics of Mortgages and Cash Flows 79

CHAPTER 3 Valuation of Mortgage-Backed Securities 97

CHAPTER 4 Other Structures in Asset-Backed Securities:CMOs, PACs, Floaters, Inverse Floaters, CDOs and CDOs-squared, and Synthetic CDOs 131

PART TWO Corporate Debt and the Securitization Markets

CHAPTER 5 How Ford Motor Credit Corporation Has Used Securitization 163

CHAPTER 6 Asset-Backed Commercial Paper 219

PART THREE Securitization of Revolving Credit

CHAPTER 7 Dealer Floor Plan Loans 263

CHAPTER 8 Credit Card Receivables 283

PART FOUR Searching for Value in the Mortgage- and Asset-Backed Markets

CHAPTER 9 Investment, Speculation, and Hedging 327

CHAPTER 10 Credit Risk and Credit Enhancement 385

CHAPTER 11 Dissecting the Risks of a Pool of Securitized Options ARMs 397

About the Authors 429

Index 431