“Unlike Treasury bonds, a mortgage pass-through may be prepaid at any time. This risk of prepayment affects the interest sensitivity of mortgage pass-through and makes the time of their cash flows difficult to predict. Because of prepayment risk, mortgage-backed securities may be an unsuitable investment for many smaller depository institutions.” - Source
Mortgage Passthroughs
1970 | Fannie Mae issued Pass-Through Mortgage Backed Securities based on mortgages insured by the Federal Housing Administration and the Veterans Administration - Source
1981 | Fannie Mae issued Pass-Through Mortgage Backed Securities based on conventional mortgages and provided a “corporate guarantee”. - Source
The First Subprime Market Shock
There seems to be roughly two types of subprime originators, those who used retail branches and held onto the loans and those who used brokers and securitized the loans
Keeping the B’s And Mark-to-Market (Gain on Sales Accounting) - Chain of Blame, pg. 43
“Subprime loans were supposed to last even longer, because, historically, homeowners with bad credit had a hard time getting a new loan.” - Chain of Blame, pg. 46
“If he makes a point on every loan, he will refinance that customer again and again and again.” - Chain of Blame, pg. 46
