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CFEM Seminar: Leon Tatevossian (NYU Courant & NYU Tandon) - Credit Risk Transfer (CRT) Mortgage Bonds: Slicing and Leveraging Homeowner Credit Risk

Tuesday, September 18, 2018 at 6:10pm to 7:25pm

Cornell Tech, 2 West Loop Road, New York, NY 10044, Bloomberg 061

Watch the recording here:  https://cornell.mediasite.com/Mediasite/Play/f5188746317c41ecb12d1405c36af7961d

One of the ongoing objectives of the Federal Housing Finance Agency (FHFA) in its oversight (conservatorship) of Fannie Mae and Freddie Mac has been restoring greater balance in the ownership of credit risk within the single-family mortgage universe.  In 2012 the Agency released guidelines on the methods for distributing this loss exposure (“Credit Risk Transfer”) towards private capital (and away from the US taxpayer).  Implementation (launched in 2013) has been comprised of a blend of capital-markets transactions, pool-level reinsurance contracts, and loan-specific mortgage insurance (on higher-LTV loans).  

From 2013 through 2017 a portion of the credit risk on $2.1 trillion of outstanding principal on single-family loans was sold into private hands; capital-markets vehicles (Fannie and Freddie debentures with principal payments linked to reference-pool loss realizations) have been the dominant strategy.  These “CRT mortgage bonds” now constitute an actively traded segment of the “credit MBS” sector.

The relative-value and risk analysis of CRT bonds references fundamental techniques from mortgage modeling as well as basic underpinnings and rationale for structured credit products (tranching, leverage).  The talk will describe how mortgage strategists view this asset class, attempt to rationalize spread performance, and examine pricing in line with the unlevered pricing of mortgage default risk (g-fee).
 

Bio: Leon Tatevossian is an adjunct instructor in Mathematics in Finance at NYU Courant and in Finance and Risk Engineering at NYU Tandon.  From 2009-16 Leon was a director in Group Risk Management at RBC Capital Markets, LLC, where he covered market risk for securitized products in secondary-trading, origination, and proprietary-trading areas.  He has twenty-nine years of sell-side experience in the fixed-income markets, including positions as a trader, quantitative strategist, derivatives modeler, and market-risk analyst.  Leon’s product background includes US Treasury securities, US agency securities, interest-rate derivatives, MBSs, ABSs, and credit derivatives.  He graduated from MIT (SB; mathematics) and was a graduate student in mathematics (algebraic number theory) at Brown University.

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