CMO Derivatives

Welcome to the CMO Derivatives Blog

Buy: IIO/INV FL and PO (Trust and Structure) 

Sell: Floaters

Thank you for visiting the CMODerivatives.ORG site. At this site  Udo will educate you on the world of mortgage derivatives. 

So be wise and listen to Udo, who is one of the top agency mortgage derivatives(Trust:PO/IIO/INV Floaters and Structure:PO/IIO/INV Floaters) trading guru’s in the nation.

This is a paperless trade had real cash been committed you as a portfolio manager would have made all the money simply because you hired a smart mortgage derivative trader like Udo. Udo knows agency relative value from the CMO to the mortgage derivatives products.

Udo Long/Short Bond Fund.

TRS CMO PO Strategy

43 Responses to “Welcome to the CMO Derivatives Blog”

  1. John says:

    Interesting pick..you should starte your own hadge fund.

  2. Peter says:

    Do you reaally think the fed will not reverse their position on rates?

  3. Udo says:

    Yes Peter the fed will continue to ease. Poor earnings, low ISM of 41.9 the last time ISM was this low was 2001. The o n going housing recession and more shoes to drop. The fed will ease untill 2008 last quater I am projecting fed funds rate of 2.5 and a 3MLIBOR of 1.5.

  4. KurtS says:

    Kudos to Udo. It’s about time some one who knows derivatives shows the other guys how to look at these things..and at the same time looks out for the investors with smart analysis. I have worked with Udo in the past and this guy KNOWS derivatives.
    Cheers Udo!

  5. Udo says:

    KurtS thank you for the kind words. Agency mortgage derivatives can be very difficult to valuing and trade. My goal is to change the negative misconception of agency mortgage derivatives. For agency mortgage derivatives is not a bad product if used the right way. I see my role as that of an educator speaking about agency mortgage derivatives from a scholastic point of view.

  6. joel lottar says:

    Can you elaborate on why the inverse floater market will outperform the floater market in mortgage land ?

    The Fed keeping easing brings Libor lower. However, as Libor + Y gets discounted on libor, and since funding is cheaper, one could argue that higher prevailing spreads offer compelling opportunities in ‘08 for floaters.

  7. Udo Onwuachi says:

    From my past experience when you look at inv floaters, the most vital component is the optionality.
    http://en.wikipedia.org/wiki/Implied_volatility
    Wikipedia has a good explanation of optionality. When looking at inv floaters you should treat it like an options derivative contract. Becareful in treating it like any other instrument. Of cause my explanation is academia driven.

  8. Robert T. Jones says:

    I would be interested in discussing topics related to CMO investments. Please contact me via email or phone at 714-293-2517.

    I look forward to working with you.

  9. Andy says:

    We are seeking CMO buyers. We are direct to seller mandates. If this is an interest to you, Contact me at 956 330-3417 or via email: andy@superior-investors.com
    Thanks,
    Andy

  10. Luis Kalinowski says:

    I WOULD BE INTERESTED IN BUYING CMO WITH FACIAL VALUE UP 500 MM AND TO KNOW THE SELLING PRICE

  11. Udo Onwuachi says:

    The CMO Derivatives market continues to offer higher yields and income returns for investors compared to corp or muni bonds . Agency debts has zero credit risk and default rate is there but you are guranteed you coupon and principal base on were you are on the structure. Make sure you understand and apply the right Speed, OAS or Static model analysis..volatility when you value agency structures.

    The GSE will survive this credit crisis. FHA will meet the loans obligation that they insured. Do not be afraid of buying Agency backed securities. You can always sell it back to the GSE via Tradweb or Bloombergs TBA3 trading platform.

    Happy Trade!

  12. Ray - RFC says:

    I have many clients looking to purchase CMO’s for the purpose of adding to a collateral package for funding their projects. Can someone contact me who is either a seller or direct, to explore how these bonds can help my clients. Thank you. Contact me at:

    funding@rfconline.net or
    877-867-8778 Ext. 1

  13. Udo Onwuachi says:

    In spite of the latest news coming out of indymac and the two major GSE’s it is vital to stay the course. Agency CMO/RMBS offers a better return. Do not engage in a fire sale situation, if you do not know the value of your bonds please feel free to let us know. We will be more than glad to offer you a free evaluation on the estimated value of your securities. After all, won’t you seek a second opinion when it comes to our medical doctor? why not do the same for your financial health.

  14. MV says:

    Mr.Udo. Could you please help me understand reverse IO’s (floaters) and how they are beneficial in this current market period. What are the risks that are associated with them? What sort of risks can these instruments hedge? Thank you.

  15. Udo Onwuachi says:

    Hi MV,

    Let me begin by saying thank you for stopping by CMO Derivatives.Org.
    My job here is to create a community of mortgage derivatives experts were we get to talk about the next stages of structured mortgage derivatives.

    Let me give you some general understanding of the IO/IIO sectors.
    There are two types of interest only sectors. We have the Trust and we have the Structure. Both sectors have an IO and IIO. When you say ‘reverse IO’s (floaters)” I take it you mean IIO. Reverse IO’s (floaters) coupon payment is mathematically calculated base on TSY/CMT/COFI or 3MLIBOR depending on the one that was use. Therefore, your major risk here is interest rate risk. For as rates go down it favors you but when rates goes up you loss value.

    The next risk is that of collateral risk, as rates go down the 10 TYS is probably following suit as well which leads to a lower mortgage rates. Now I am not going to go into seasoning, burnout and loan size here but few customers tend to refi whenever the rate is palatable to them and if they have no pre-payment penalties. With a reverse IO’s (floaters) you want a slow payer that is people who cannot refi for reasons best know to them a collateral with high pre-payment penalty. Bear in mind when you look at this reverse IO’s (floaters) know when to use PSA or CPR given the vintage.

    The next risk is what I called perceptions of other PMs. Most if not all PMs look at the economic data in making investment decisions. They look at the PPI/CPI/RETAIL SALES/UMEMPLOYMENT etc if any of these economic data begins to show trends of being bullish the PM may decide to act on it which will affect the 10 TSY which then ultimately affects the 30 year mortgage rate which in turn affects the consumers ability to refi or not and hence, your reverse IO’s (floaters).

    The risk this instrument hedge is your loan and cashflow. For example, a mortgage company or bank that loaned out money when rates were at 5% and the rate are now at 2% with reverse IO’s (floaters) the mortgage or bank is fully protected. Furthermore, asset management firms can use it to manage their portfolio’s duration as well as generate an alpha return if the right reverse IO’s (floaters) is bought, like I asserted earlier in my comment, not all reverse IO’s (floaters) are equal. They all behave differently base on a whole host of factors, it is imperative to have a well seasoned person look at these instruments to avoid having yours eye gauge out.

  16. Al says:

    Need buyers for CMO’s. Al 520-299-9383

  17. Jim Martin says:

    Udo,

    I would like to take you up on your offer to evaluate a CMO. How do I contact you in a secure manner?

    Thanks,
    Jim Martin

  18. m stein says:

    I am a business broker with a client with AAA FNMA securities seeking a loan

    do you know of any credit facilities Udo?

    I would pay a fee if successful

  19. m a stein says:

    how do we offer CMO’s to you Udo for
    as you said free evaluation

    ‘Do not engage in a fire sale situation, if you do not know the value of your bonds please feel free to let us know. We will be more than glad to offer you a free evaluation on the estimated value of your securities.’

  20. m a stein says:

    dear Mr Luis Kalinowski
    how do i contact you?

    M A Stein Lic Fla Business Broker
    privateplacement2@yahoo.com

  21. Udo Onwuachi says:

    Jim Martin this place is secure. What is the modified duration, who is the issuer? Is it a vintage deal? What’s the notional? Is it a trust or structured deal? Is it an agency or non agency?

  22. Udo Onwuachi says:

    m a stein please kindly post your CMO bonds up right here. You can begin with one or two CMO bonds if you are not comfortable with posting a lot.

  23. Jim Martin says:

    FNR 2006-5 N2 2.6863%
    Issuer: Fannie Mae 2/25/06 - 2/25/35
    CMO: IO, CSTR, NTL
    July 08 Current $674,096,319
    Original $2,083,383,770

    July, June, May, April, March, Feb, Jan
    PSA 572 691 789 784 930 875 973
    CPR 34.3 41.4 47.3 47.1 55.8 52.5 58.4
    Fact .32 .34 .35 .37 .39 .42. .45
    CPN 2.68 2.69 2.85 2.07 2.29 0 0
    WAC 5.98
    WAM 309
    US0012M 78.56%
    H15T1Y 19.12%
    US0006M 2.09%

  24. udo onwuachi says:

    Jim Martin:
    CUSIP Number: 31394VL99
    Security Type: REMIC: Typically Single-Family MBS-backed
    Trust Number: 2006-5
    Class: N2
    Issue Date: 01/2006

    History of not paying the coupon in the pass i.e. this bond did skip a couple of months payments.

    Collateral: 100% ARMS loans

    Holding this bond means you are bullish on TSY. With the current weak labor market I continue to see a decline in U.S TSY yield in the front end of the curve.

    At a 60 PPC the AVL is 1.96 at 30 PPC you get an AVL of 2.72.

    Other relative investments that you can put your money to work are: i.e. you can put money to work in anyone of these products instead of the above ARMS IO.
    • U.S TSY short term securities
    • Commercial papers(triple AAA rated companies)
    • Options on rates
    • CDs
    • Overnight Repos
    • Similar Agency backed IIO with the same AVL

    Below is an a piece of information from the prospectus to consider if you want to buy or sell.

    “The Fannie Mae Guaranty
    Our guaranty requires that we pay Certificate holders in a timely manner the amounts
    of principal and interest described in the related prospectus supplement. We also must pay the full outstanding principal amount of the Certificates of each class no later than the Final Distribution Date for that class. Our guaranty is effective whether or not sufficient funds are available in the Trust Account for the series. If we were unable to perform our guaranty obligations, Certifcateholders of a series would receive only the amounts paid on the underlying securities of that series. If that happened, those amounts generally would be limited to borrower payments and other recoveries on the mortgage loans backing those underlying securities. As a result, delinquencies and defaults on the mortgage loans backing the underlying securities could directly affect the amounts that Certifcateholders would receive each month.”
    This explains the zero payments that was not paid for a couple of months.

    After considering all of the above afore mentioned factors the model mark price is between a $2-00 on the low end and a $3-25 handle on the high end.

  25. Jim Martin says:

    Udo, Thanks for the evaluation. If you would be so kind, Wells Fargo CMO.
    CUSIP 94984SAC5. WFMBS 2006AR-18 1AIO

  26. B. Wusyk says:

    Udo, The 2.00 - 3.25 model mark price should be multiplied by what value to determine the value of the CMO?

  27. Udo Onwuachi says:

    Jim Martin:
    WFMBS 2006-AR18 1AIO
    Price 0-15
    8.4 CPR
    WHARM 6.2 N 6.410(338)22

    2 0 0 8
    factor 1mo CPR
    0.754149486 8.2
    0.747475328 9.5
    0.739421625 11.5
    0.723675836 22.1
    0.717182037 9.6
    0.704676912 18.1
    0.699186114 8.4

  28. steve says:

    Have cmo’s available for sell, have all the screen shots and settlement details, both agency and residential.

    Please contact at:
    smt1954@aim.com
    tel 33 6 13756746 fr.

    Need buyers that are ready to execute.

  29. K.A says:

    We are looking to purchase privately owned CMOs with a T+5 settlement. Please contact me at akqj54@hotmail.com or +86 136 4126 1848

  30. ming lim says:

    we are looking for the following cmo:

    Issuer Ginne Mae
    cusip 38375QQE2

    One source that said they could deliver failed we have funds available at bank and on deposit to trade.

    You are able to deliver please contact with infom such as settlement details, bank officer, and the amount and pricing.

    I know the pricing of the cmo, and what to pay for it.

    If you can deliver please contact at:
    minglinglim@yahoo.com

  31. Andrew O'Fee says:

    I am looking for a job trading agency cmo’s. Do you know of anyone that is hiring? I have been in the business for over 20yrs.

  32. Udo Onwuachi says:

    Andrew O’Fee why not leave your contact information…this way firms that are looking can reach out to you.

  33. Michael Stay says:

    Good morning, Udo:

    I just called you - mentioned that I found you through a Reuters article about you.

    I am pursuing a business funding structure through the purchase and backend leverage, via a line of credit, of CMO’s. I have an investor that has provided a written commitment letter to invest up to $50M in the purchase of CMO’s, and I have a backend private lender willing to lend 5-7% of face value on multiple CMO’s with an ideal face value of $400M. The lender has lines of credit with Credit Suisse, B of A, and Shearson that they will tap to offer a line of credit program to us.

    I am looking for the following:
    - Up to four CMO’s

    - Ideal Face Value- $400M each
    - Rating- AAA

    - I/O with a minimum positive floater or better

    - Market value at 2%-3% of face value

    - Cost to purchase, including fee - 1% of face value

    We are seeking to purchase these CMO’s through an escrow environment, providing our investor with a lower level of risk, as well having transparency throughout the transaction. Once we take ownership over the CMO and it has been re-registered under Core Impact Consulting, the bond will need to be transferred via SWIFT to the Line of Credit Program with our lender.

    Our next step is to get screen shots of the four CMO’s to our private lender today for them to determine their viability and provide a conditional commitment letter if they are acceptable. With that commitment letter, we will go immediately to our investor and get their final approval to execute the deal. Our desired timing is to commence the purchases by the end of the week.

    Please advise if you are available, willing and interested in working with us.

    Thank you,

    Michael Stay

    “Making Small Business Coaching as Commonplace as Having an Accountant”

  34. Udo Onwuachi says:

    Sure no problem I am willing to work with you in putting your money to work.

  35. Gene says:

    We own a $26M CMO of $26M. We are trying to use it as collateral for a loan. Where can we get the best LTV? If you give me an email address, I can send you the bloomberg screen shots. Thanks.

  36. Udo Onwuachi says:

    Bond CUSIP Size Price Talk
    CFLX 2007-2 M1 16165WAC0 8.700 low 20s
    CFLX 2007-2 M2 16165WAD8 1.650 Mid Teens
    CFLX 2007-2 M3 16165WAE6 0.700 Low Teens

    updated price#2:PRIME: SUPER SENIOR 3/1 HYBRID **ORDER**

    WMLT 06-A 1A1 30+MM/17+MM 92977TAA0 5.46% NWAC

    SUPER SENIOR WITH 8.00% CURRENT CE BACKED BY 3/1 HYBRIDS
    60+ DQ: 1.60%
    WALA: 36 (30 wala for grp)
    WALTV: 68.8% GROUPS 1,2,3,4 ARE CROSSED
    CAL: 55%
    POOL FACTOR: 0.754
    3 MO CPR: 9.7 (grp) ‘offered’ = 81-0
    FICO: 739

  37. Ike Rojers says:

    Index Coup Bid Offer Chg || Index Coup Bid Offer
    Chg
    07-2 PAAA 76 50-08 / 51-08 +0-12 || 06-2 PAAA 11 82-12 / 83-12
    -0-01
    07-2 AAA 76 42-16 / 43-16 +0-03 || 06-2 AAA 11 62-12 / 63-12
    +0-02
    07-2 AA 192 9-08 / 10-08 +0-06 || 06-2 AA 17 18-00 / 19-00
    +0-00
    07-2 A 369 7-16 / 8-24 -0-05 || 06-2 A 44 6-16 / 7-16
    +0-03
    07-2 BBB 500 5-00 / 6-00 +0-01 || 06-2 BBB 133 4-00 / 5-00
    -0-14
    07-2 BBB- 500 5-00 / 6-00 +0-00 || 06-2 BBB- 242 4-00 / 5-00
    -0-15
    =============================================================================
    Index Coup Bid Offer Chg || Index Coup Bid Offer
    Chg
    07-1 PAAA 9 57-16 / 58-16 +0-06 || 06-1 PAAA 18 95-24 / 96-00
    -0-02
    07-1 AAA 9 46-08 / 47-08 +0-18 || 06-1 AAA 18 87-16 / 88-08
    +0-02
    07-1 AA 15 8-16 / 9-16 -0-07 || 06-1 AA 32 50-24 / 51-24
    -0-08
    07-1 A 64 5-08 / 6-16 -0-03 || 06-1 A 54 18-00 / 19-00
    -0-01
    07-1 BBB 224 4-00 / 5-00 -0-15 || 06-1 BBB 154 9-00 / 10-00
    +0-12
    07-1 BBB- 389 4-00 / 5-00 -0-14 || 06-1 BBB- 267 9-00 / 9-24
    +0-09

  38. steve says:

    for michael stay, if intreested i have some IO’s from AAA rated, i have screen shots an all please contact at

    smt1954@aim.com
    tel 33 6 13756746 fr

  39. steve says:

    we have the following

    wells fargo cmo
    rated AAA
    cusip 94984sac5
    col maturity 11.25.2036
    class 1AIO
    TYPE IO
    july 2008 balance 541,019,727

    smt1954@aim.com

  40. Fred says:

    Looking for buyers of CMO’s that can close using an escrow agent.

  41. Frank D says:

    I am told that my CMO’s current market value of 260M can be leveraged and some type of line of credit for PPP can be put on this CURRENT MARKET VALUE of 260M. Can anyone help with this? I would appreciate an offline answer. Principles who know, only. No intermediaries please.
    - racy.prg@gmail.com -

  42. John Coleman says:

    Udo,
    Have a client looking at CSTR, IO, NTL tranches (3AX class in trusts I guess). He’s looking for high current balance, low dollar price. I am not familiar with this bond class. Could you give me a little color on what it is and what effects cashflows? One that he gave me as an example was 19075DAG6. Thanks and if anyone is interested in selling these securities, I may have a buyer. Regards, John

  43. steve says:

    I have a secured financing facility in place and looking for IO CMO’s .

    The facility is confirmed and available .

    The general terms of facility are:

    Settlement is T plus 3. The facility is issued in a security house and is secured.

    Even though I have posted before on this blog. Those cmo’s are no longer available.

    Source of the cmo’s must be able to give bloomberg screens of the cmo’s available,and if accepted i can give ability of doing the trade.

    Source must be able to do a free delivery.

    This facility is available and without delay.

    Please feel free to contact:

    smt1954@aim.com
    tel 33 6 13756746 fr

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