The Research On Prepayment Risk In Jianyuan 2007-1 Residential Mortgage-Backed Securities

Residential Mortgage-backed Securitization(RMBS)improves the bank capital structure by repacking and selling the housing mortgage loans to the Special Purpose Vehicle(SPV).It also improves the capital market liquidity by issuing mortgage-backed securities on the market after structured processing such as credit enhancement.Under the background of the closely completion of interest rate market and the de-inventory of real estate market,RMBS grew rapidly during recent period.However,as the same with other financial derivatives,RMBS has a certain level of risk.Since the basic assets' qualities are high and the securities are basically issued at the floating rate,compared to the default risk and interest rate risk,prepayment risk becomes the main risk of RMBS.This paper takes "Jianyuan 2007-1RMBS" as the research object,focusing on the product historical payment risk level and its factors.The paper mainly includes the following three parts.First of all,this paper discusses the formation mechanism of prepayment risk.Due to different participants in the RMBS bore different risks,meanwhile,the extension of prepayment risk and the extension of default risk as well as interest rate risk are crossed,the definition of prepayment risk is unclear.Therefore,this paper first redefines prepayment risk,which is different from the default risk and interest rate risk.It points out that this risk is caused by the early repayment behaviors of the borrowers,which will make the cash flows of asset pool unstable,and also causes the losses of the transaction parties.After that,this paper analyzes the reasons for prepayment risk' formation from aspects of the refinancing requires,reinvestment requires and housing resignation requires.Secondly,this paper takes "Jianyuan 2007-1RMBS" as the research object,on the basis of introducing the transaction structure,basic asset pool and income distribution information of this product,as well as analyzing the cash flow structure of the basic asset,this paper points out that there is a high level of prepayment risk in this product.And then discusses the mechanism of risk factors from the theoretical perspective.The macroeconomic risk factors include macroeconomic growth rate,mortgage spread with its path,the return of capital market and the housing prices.the microeconomic risk factors include cumulative prepayments,revenues of borrowers and other factors associated with loans and borrowers.Finally,this paper measures the historical prepayment rate of "Jianyuan2007-1RMBS",and conducts the empirical test to examine the relevant factors.Based onthe comparative analysis of the prepayment models,this paper chooses the SMM and CPR methods to measure the historical prepayment risk,using the multiple regression method to test the risk factors which have been discussed earlier,and finally draws out six main factors,which are the macroeconomic growth rate,mortgage spread,return of capital market,housing prices,cumulative prepayments,and Spring Festival factors.Economic growth rate,return of capital market and housing price have a positive impact on the prepayment rate.Mortgage spread and Spring Festival factor have a negative effect on the prepayment rate.The prepayment rate trend is a inverted U-shape with the cumulative prepayments.Among them,the three factors which have the greatest impact on the repayment rate are mortgage spread,Spring Festival and the cumulative prepayments factors.The corresponding suggestions are: first,following-up products should pay more attention to properly shorten the remaining period of mortgages during the selection of asset pool mortgages;second,we can consider joining the interest rate,the economic growth rate and housing price parameters into the setting of dynamic prepayment default rate;third,in the operation of RMBS,SPV should be prepared to the steep reduction of prepayment risk when Spring Festival is coming.