More Stable Analytics for Modelling TBA Agreements

Apr 1, 2016

This Technical Note introduces a newly developed approach for TBA selection in RiskManager. The new methodology matches a TBA deal of a given coupon to a specific vintage (origination year) considering four major market factors: liquidity, current production coupon, projected future value, weighted OAS of each origination year and historical prepayment. The new process will run monthly and update the relevant characteristics (WAC, WAM, WALA, etc.) once the agencies have delivered the relevant monthly MBS updates. This will result in a stable set of statistics during a given a month. The market price will be updated on a daily basis for liquid TBA programs.

Why is this topic of interest?
TBAs are the most liquid instruments in the agency Mortgage-Backed Security (MBS) market. Accurate TBA analytics are crucial as these instruments serve as reference points for other securitized product instruments.

Who should read this paper?
Risk managers who seek an additional view on TBA properties.