Problem: Mortgages and Securitization
An FI originates a pool of 500 30-year mortgages, each averaging $150,000 with an annual mortgage coupon rate of 8 percent. Assume that the entire mortgage portfolio is securitized to be sold as GNMA pass-throughs. The GNMA credit risk insurance fee is 6 basis points and that the FI's servicing fee is 19 basis points. Assume no prepayments.
1) What is the present value of the mortgage pool?
2) What is the monthly mortgage payment?
3) What are the expected monthly cash flows to GNMA bondholders?
4) What is the present value of the GNMA pass through bonds? Assume the risk-adjusted market annual rate of return is 8%.
5) Would actual cash flows to GNMA bondholders deviate from expected cash flows as in part c? Why or Why not?