Daily Prices for Agency Mortgage Backed Securities (MBS).
Overview: DIH provides evaluated prices on a comprehensive set of agency mortgage backed securities (MBS) and non-agency collateralized mortgage obligations (CMO).
Coverage: We currently cover approximately one (1) million securities.
History: Most of our mortgage backed securities data goes as far back as the security’s issue date.
Updates: We update our data daily.
Delivery: You can receive our data in bulk files via download, S3 to S3, or on-demand via API.
Pricing: Several inputs go into the pricing for our data. For example, do want data for all available instruments, or a subset? How much history do you want? Do you want updates going forward? Contact us to learn more.
Why Firms Choose DIH’s Data.
Institutional investors use DIH’s evaluated prices to determine the fair value of these securities that are traded over-the-counter.
There are several reasons institutional investors rely upon our data:
- Market Coverage – we currently provide daily evaluated prices for approximately one (1) million securities, which closely matches the securities in their portfolio and target universe.
- Accuracy – also referred to as “market alignment”, the accuracy of our evaluated prices versus actual transaction prices is critical to our clients.
- Cost – There are not a lot of sources for mortgage backed securities price data, and so the legacy data providers are typically inflexible when it comes to what they charge for such data. In contrast, DIH works with its clients to provide data within their budget.
An Overview of Mortgage Backed Securities Data.
Before we get into the details of how our evaluated prices are created, a quick review of mortgage backed securities may be helpful.
WHAT ARE MORTGAGE BACKED SECURITIES
Mortgage backed securities (MBS) are a type of asset backed securities (ABS). Asset backed securities are a type of financial investment that is collateralized by an underlying pool of assets that typically generate a cash flow from debt (e.g. loans, leases, credit card balances, or receivables). Asset backed securities take the form of a bond or note, paying income at a fixed rate for a set amount of time, until maturity. For investors seeking income, asset backed securities can be attractive versus other debt instruments like corporate bonds, bond funds, etc. For the issuers of asset backed securities, they enable them to raise capital that they can use for lending.
Mortgage backed securities are created by pooling together mortgages. Similar to bonds, these securities are made up of a bundle of home loans bought from the banks that issued them. The bank handles the loans and then sells them at a discount to be packaged as securities to investors as a type of collateralized bond.
Here is an example of how mortgage backed securities are created…
- A homebuyer with a median FICO® Score of 760 is getting a 30-year conventional mortgage for a single-family home that will be his primary residence and is making a 20% down payment.
- Once the loan is closed, it is sold to either Fannie Mae or Freddie Mac as a conventional loan. When Fannie Mae buys the loan, they put it in a pool of other mortgages with similar characteristics. The pool could include 1,000 loans or more. Once packaged, Fannie Mae will offer the MBS for trading on the bond market.
- Individual loan characteristics and risk profiles determine the requirements for inclusion in specific pools. Every mortgage investor also has minimum standards for the loans they will buy. For example, conventional loans require a debt-to-income (DTI) ratio of 50% or less and a minimum median FICO® Score of 620 or higher.
Investors in mortgage backed securities receive periodic payments similar to bond coupon payments. By buying such securities, the investors are in effect lending money to home buyers. For the investors, mortgage backed securities are as safe as the mortgage loans that back them up. Mortgage backed securities are viable so long as banks use reasonable standards when granting mortgages, homeowners pay their mortgages on time, and credit rating agencies that review the securities do proper due diligence. This process broke down and caused the subprime mortgage crisis back in 2007-2008.
A QUICK HISTORY LESSON
Fannie Mae issued the first mortgage backed securities back in 1968, but they didn’t become popular until 1977 when a bond trader came up with the idea of a 5- and 10-year bond that would be funded by the principal and interest payments on mortgages. Mortgage backed securities provided a liquid home loan market and helped make mortgage financing more available, thus helping to push up home prices over time. The trading of mortgage backed securities also influences what mortgage rates are for homebuyers.
In order to be sold on the markets today, mortgage backed securities must be issued by a government-sponsored enterprise (GSE) or a private financial company. Examples of GSEs are Ginnie Mae, Fannie Mae, and Freddie Mac. The mortgages must have originated from a regulated and authorized financial institution. Finally, mortgage backed securities must have received one of the top two ratings issued by an accredited credit rating agency.
There are two (2) types of mortgage backed securities:
- Pass-throughs are structured as trusts in which mortgage payments are collected and passed through to investors. They typically have stated maturities of 5, 15, or 30 years. The life of a pass-through may be less than the stated maturity depending on the principal payments on the mortgages that make up the pass-through.
- Collateralized mortgage obligations (CMO) consist of multiple pools of securities which are known as slices, or tranches. The tranches are given credit ratings which determine the rates that are returned to investors.
Real Estate Mortgage Investment Conduits (REMICs) are bonds created from pools of mortgages. Re-REMICs are securities created from the underlying cash flows of existing REMIC bonds.
METHODOLOGY BEHIND OUR EVALUATED PRICES
Securities are grouped into categories based on collateral, seniority, and type of tranche. A range of yields is determined for each category.
For Re-REMIC, prepay and default vectors are calculated using models that reflect current market conditions (including views on housing and unemployment). These models also reflect the latest available remittance reports, which are used to generate loan-level performance expectations. Using the model-supplied prepayment and default vectors, cashflows are generated for each of the tranches that comprise the Re-REMIC. Those cash flows are then aggregated and applied to the tranches that comprise the Re-REMIC structure.
Each individual tranche is reviewed to assign an adjustment factor to the baseline discount margin (DM)/yield. The adjustment factor is based on specific shelf and servicer names, bond Insurance (if applicable), structural / waterfall features, and underlying collateral quality.
Cash flows are discounted at the DM/yield according to the baseline yields and adjustments from above.
Prices are then checked against parsed prices for each bond, bonds from the same deal, bonds from the same shelf, and bonds that have similar structure and collateral. Appropriate adjustments are made based on these observable prices
Who Can Benefit from DIH’s Evaluated Prices?
Mortgage backed securities are bought and sold on the over-the-counter bond market often by large mutual funds and other institutional investors. Such firms utilize our evaluated prices in various ways, especially in their research and risk management.
How Firms Use Our Mortgage Backed Securities Data.
Institutional investors rely upon evaluated prices from multiple sources to determine the fair value of securities traded over-the-counter. They may also use broker/dealer quotes as additional inputs to their process. Evaluated prices are also widely used as benchmarks for comparison and defensibility.
Flexible Updates & Data Delivery Methods.
Our mortgage backed securities data is updated on a daily basis.
You may customize our data to best suit your needs. For example, request data on all available instruments or provide a custom list.
We offer several ways to access our mortgage backed securities data:
Bulk File Download – For most of our clients, downloading our data in bulk files is most convenient. We deliver files in .CSV format via download or S3 to S3.
API – Some use cases are better suited for on-demand delivery of data via an API.