Fixed Income- Securitization glance, anybody, confusion, really, products

bcp901

Can anybody give glance on RMBS and CMBS types of Stuctured products, i have confusion on Prepayment risk...... Do the RMBS carry high prepayment risk than CMBS. your input is really appreciate!!!!!!

Best regards,
Bhavesh Soni

mp3bu

RMBS has higher prepayment risk than CMBS due to limited prepay penalties. Every time interest rates drop, prime homeowners generally refi. CMBS refi is generally very limited. CFAKid has it right.

xilinx_altera

Thanks JoeyDVivre, Andrew3032, cfakid

zephyranalyst

Also, CMBS are non-recourse loans and have various prepayment safe guards like defeasence and some others cant remember them off the top of my head.

bolligerallstar

and don't forget how they have tranched the risk, what tranche you are buying into, and how much the support tranches have already been impacted by prepayments and or defaults.

defour44

Not sure what your book says but commercial mortgages are usually floating rate and residential mortgages are usually fixed rate. That means that interest rate fluctuations cause more prepayments for residential mortgages than commercial mortgages. But, in general, I would say that it's not a particularly relevant comparison because what really matters is the characteristics of the security you own, not the prepayments for this humongous class of securities.