Asset-Backed Securities

What this video covers

• The four-step securitization flow from originator to investor, and why bundling 10,000 car loans into a trust creates tradeable securities
• The 10% clean-up call threshold and the 30/360 day-count convention for mortgage-backed securities accrued interest
• How collateralized mortgage obligations (CMOs) redirect cash flows to divide timing risk, not credit risk, across sequential-pay, PAC, TAC, companion, Z-tranche, IO strip, and PO strip structures
• Why interest-only (IO) strips move inversely to most bonds when rates rise, and why principal-only (PO) strips behave like typical bonds when rates fall
• The prepayment risk versus extension risk trade-off, and which tranche absorbs each shock to protect the others
• How planned amortization class (PAC) tranches use a collar for dual protection, how targeted amortization class (TAC) tranches protect at only a single speed, and how companion tranches sacrifice themselves as shock absorbers
• How collateralized debt obligations (CDOs) divide credit risk through senior, mezzanine, and equity tranches, and the critical exam distinction between CMO timing risk and CDO credit risk