Customer Reviews

Basics of Mortgage-Backed Securities (Frank J. Fabozzi Series)

5 star:		(2)
4 star:		(1)
3 star:		(1)
2 star:		(0)
1 star:		(0)

 

 

This is the best introduction, giving a brief yet broad coverage to an important market. In just 144 pages Hu covers the the important points. The Mortgage Backed Security market, at over 2 trillion dollars, will soon exceed the US treasury market as the largest and most liquid bond market. Nevertheless, this market is still viewed as highly specialized due to the complications in security structure and prepayment optionality. Hu explains these complications clearly giving the reader confidence to enter this market.

This book was a great introduction to the basics of mortgage-backed securities, exactly as the title professes. It is loaded with graphs and tables to help readers understand the quantitative sections.

If you really want to understand this subject though, read Fabozzi and Modigliani's "Mortgage and Mortgage-Backed Securities Markets" as well as (or even in lieu of) this book. It dates back to the 80s, but together with this book you will have a firm grasp of the fundamentals, and you can easily understand recent developments.

Anyone interested in learning the basics of MBS will benefit from this book.

Author Dr. Joseph Hu does a fine job of examining the following topics in 12 chapters: residential mortgages, US residential mortgage market, pass-throughs, prepayment, basic mortgage math, ARMs, multiclass pass-throughs, private labels, HELOC-backed securities, dollar rolls, relative value analysis and historical performance of MBS.

Some data is dated (1990's). Then again, the book has a 2001 copyright. Nevertheless, the fundamental concepts of MBS are comfortably examined in 168 pages.

Hu did a fine job elaborating on mortgage prepayment and the primary reasons for it (refinancing and housing turnover). I also benefited from Chapter 7's focus on multi-class pass throughs, where CMOs, PACs, Floaters, IOs and POs are briefly discussed.

There are more illustrative graphs than confusing formulas in this book. All in all, I found "Basics of Mortgage-Backed Securities" to be quite readable. Overall, I give this book a 3 1/2 star rating. Readers interested in getting much more detail about MBS should consider "Salomon Smith Barneys Guide to Mortgage Backed and Asset Backed Securities" (Hayre).

Hu's book is an excellent primer on mortgage-backed securities from both the supply and demand sides. While I must confess I was quickly swamped by the math (through no fault of Dr. Hu's, perhaps a workshop would have been a better way for me to learn about WACs and WAMs) I got the gist of the material.

Although the publication date is 2001, most of the examples and graphs are as of the mid-90s. It would be great to see a 3rd edition, especially discussing the more exotic mortgage instruments that have come on the market.