Importance This paper deals with the issues of mortgage securitization risk. Objectives The paper aims to develop methods to reduce the coupon rate of mortgage-backed securities (MBS) when they are initially placed, to reduce the originator's cost to refinance mortgage portfolios. Methods For the study, I used MBS risk-factor models (regression evaluated by least squares) and a statistical analysis of data on mortgage securitization transactions of Russian originators over the past ten years (2006–2016). Results I have developed and now present two techniques of reducing the MBS coupon rate based on the following methods: (1) market timing, in terms of monitoring of the dynamics of market rates to find a good time for securitization, and (2) financial engineering, in terms of the ability to construct a credit pool with the specified characteristics. Conclusions and Relevance The techniques developed enable one to optimize the MBS coupon rate and increase the efficiency of securitization. The methods are applicable both to the improvement of existing strategies and to the originators securitizing for the first time. The results obtained can be useful to banks and financial institutions in terms of corporate finance and risk management.
Dunn K.B., McConnell J.J. Valuation of GNMA Mortgage-Backed Securities. The Journal of Finance, 1981, vol. 36, iss. 3, pp. 599–616. URL: Link
Schwartz E., Torous W. Prepayment and the Valuation of Mortgage-Backed Securities. The Journal of Finance, 1989, vol. 44, iss. 2, pp. 375–392. URL: Link
Schwartz E., Torous W. Prepayment, Default, and the Valuation of Mortgage Pass-through Securities. The Journal of Business, 1992, vol. 65, iss. 2, pp. 221–239. URL: Link
Kang Р., Zenios S.A. Complete Prepayment Models for Mortgage-Backed Securities. Management Science, 1992, vol. 38, no. 11, pp. 1665–1685. URL: Link
Stanton R. Rational Prepayment and the Valuation of Mortgage-Backed Securities. The Review of Financial Studies, 1995, vol. 8, iss. 3, pp. 677–708. URL: Link
Kariya T., Kobayashi M. Pricing Mortgage-Backed Securities (MBS). Asia-Pacific Financial Markets, 2000, vol. 7, iss. 2, pp. 189–204. URL: Link
Kariya T., Ushiyama F., Pliska S.R. A three-factor Valuation Model for Mortgage-Backed Securities (MBS). Managerial Finance, 2011, vol. 37, iss. 11, pp. 1068–1087. URL: Link
Davidson A., Sanders A., Wolff L., Ching A. Securitization: Structuring and Investment Analysis. Wiley Finance, 2003, 576 p.
Calomiris C.W. Banking Crises Yesterday and Today. Financial History Review, 2010, vol. 17, iss. 1, pp. 3–12. URL: Link
McCoy P.A., Pavlov A.D., Wachter S.M. Securitization and Systemic Risk Amid: Deregulation and Regulatory Failure. Boston College Law School Faculty Papers, 2009, vol. 41, 49 p. URL: Link
Tavasiev A.M., Kuchinskii K.A. [Mortgage Securitization – Lessons of the Past and Prospects]. Den'gi i kredit = Money and Credit, 2010, no. 12, pp. 16–23. (In Russ.)
Wu D., Yang J., Hong H. Securitization and Bank's Equity Risk. Journal of Financial Services Research, 2011, vol. 39, iss. 3, pp. 95–117. URL: Link
Prokopczuk M., Siewert J.B., Vonhoffc V. Credit Risk in Covered Bonds. Journal of Empirical Finance, 2013, vol. 21, pp. 102–120. URL: Link
Drobyshevskaya L.N, Koneva T.V. [Securitization of mortgage assets in Russia]. Nauka i ekonomika, 2012, no. 5, pp. 11–16. (In Russ.)
Aksenov V.S., Golikov P.S. [Securitization of mortgage bag in Russia: issues and prospects]. Ekonomicheskii zhurnal, 2011, vol. 22, iss. 2, pp. 72–79. URL: Link (In Russ.)
Tolmacheva A.A. [Securitization of financial assets and mortgage securities]. Trudy ISA RAN, 2007, vol. 30, pp. 71–94. URL: Link (In Russ.)
Gorlina E.Yu. [Efficiency analysis of securitization deals in Russia]. Trudy ISA RAN, 2011, vol. 61, iss. 3, pp. 71–94. URL: Link (In Russ.)
Shautin S.V. [Cost of Capital Valuation for Special Purpose Vehicles in Russian Mortgage Securitization Deals]. Innovatsii i investitsii = Innovations and Investments, 2017, no. 1, pp. 141–145. URL: Link (In Russ.)
