Study On The Mortgage-Backed Securities

Asset securitization emerged in the 1970s is the most important innovation of financial products. Because of its innovative structure and transaction processes meet the needs of different investors, securitization has become the world's fastest-growing and the most popular financial products. Among all of the securitization products, Mortgage-Backed Securities (MBS) has the biggest outstanding balance and the important status. Asset securitization seems as the securitization of mortgage lacked of liquidity, acturaly, it is the securitization of the ability of asset to bring the stable and predictable cash flow.First of all, the paper discusses the definition of asset securitization, the three major basic principles, namely asset rerangement principle, risk isolation principle and the credit enhancement principle, the process and the major particpants of securitization. Because of the mortgagor's prepayment decision is intergral to the cash flow and the valuation of securities, we introduce the definition, and the factors influenced the prepayment decision of mortgagors and prepayment function. And then, we try to estimate a model of prepayment on the Chinese mortgage market. Following the introduce of kinds of valuation models of Mortgage-Backed Securities, we derive a valuation model of Chinese MBS, and apply it to the asset pool of the first pieces of MBS on the base of 7-day repurchasing rate of bonds on inter-bank bond market.The characteristic of this paper is that we discuss the factors influenced the prepayment decision of mortgagors and try to provide a prepayment model based on the special structure and consumtion habits of china. The difficulties we faced are following: firstly, there is not enough prepayment data, it's difficult to apply a quantitative analysis on the prepayment model; secondly, the lack of short-term interest rates influences the accuracy of valuation.