15 Comments
 
Best Response
mb666
AmphipathicA MBS are not derivative, it's a pool of asset (mortgages) that has been securitized.

Not sure if you're joking...

But yes MBS are backed by other assets (mortgages) and therefore are derivatives.

No, I am not joking. An MBS is a type of ABS, and therefore a security, not a derivative. The definition for securitization makes it sound like a derivative, but it's not. You actually own the debt, it's not a forward commitment or contingent claim.

 

Plain vanilla MBS= No. Why, you may ask. Since it is bundled into a bond and the holders receive payments.

When splitting up a MBS into tranches and selling them off= CMO, then it becomes a derivative.

CNBC sucks "This financial crisis is worse than a divorce. I've lost all my money, but the wife is still here." - Client after getting blown up
 
Working9-5Plain vanilla MBS= No. Why, you may ask. Since it is bundled into a bond and the holders receive payments.

When splitting up a MBS into tranches and selling them off= CMO, then it becomes a derivative.

Hmm, I still think that a CMO is a debt instrument, not a derivative. It is just a different way of bundling the debt.

 

Ok, set things straight.

MBS not derivative.

Technically, all CMOs are derivatives although you will not hear a CMO trader say they are a "derivatives trader". Occasionally you will hear CMO trader say that he trades "CMO derivatives" and that means that he traders IO, PO, and IOS (not fixed/floating CMOs) --but he is most likely when asked to say "I trade structured IOs for blank" or "I trade the trust IO book for..."

This is the same for the rest of the mortgage products even if they are derivatives (ie the CMBX trader would not say he is a derivatives trader, he would say that he is a CMBX trader. Same for the ABX trader)

"Greed, in all of its forms; greed for life, for money, for love, for knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA."
 

Found this on the web: http://www.clevelandfed.org/research/Commentary/1995/0901.pdf ... says that CMOs are indeed financial derivatives.

With regards to MBS I was wrong. They don't seem to be derivatives. This can be an issue of semantics as I see asset-backed securities and the term derivatives combined all across the web... like here: http://derivativedribble.wordpress.com/2009/02/02/credit-default-swaps-….

 

That's because there were lots of CDS contracts written on MBS securities. The CDS is the derivative, the original MBS is not.

"Greed, in all of its forms; greed for life, for money, for love, for knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA."
 

Correct. Once you carve up the cash flows it becomes a derivative.

Jack: They’re all former investment bankers who were laid off from that economic crisis that Nancy Pelosi caused. They have zero real world skills, but God they work hard. -30 Rock
 

Aliquid dolores aut voluptatem praesentium. Accusamus illum explicabo nisi amet ratione. Qui aut saepe rerum ut vero neque. Atque totam nisi quod voluptate dolore molestiae et animi. Tenetur facere occaecati mollitia officiis ipsa.

Tenetur et consequatur illo quam dolorem rem id. Dolorem quibusdam laboriosam est laudantium veritatis qui quae assumenda.

Ad itaque animi id fugiat laudantium assumenda quis. Inventore ut vero quia ipsa enim est. Et magnam est mollitia tenetur ex est. Molestias eos voluptatem doloremque doloremque aliquam et. Recusandae culpa animi officiis odio doloribus. Iure quibusdam cum dignissimos est.

Career Advancement Opportunities

July 2025 Investment Banking

  • Goldman Sachs 01 99.5%
  • Evercore 07 98.9%
  • Moelis & Company 04 98.4%
  • Citigroup 11 97.8%
  • Houlihan Lokey 08 97.3%

Overall Employee Satisfaction

July 2025 Investment Banking

  • Evercore 10 99.4%
  • Moelis & Company No 98.9%
  • RBC Royal Bank of Canada 03 98.3%
  • Houlihan Lokey 14 97.8%
  • Morgan Stanley 02 97.2%

Professional Growth Opportunities

July 2025 Investment Banking

  • Evercore 08 99.5%
  • Moelis & Company 01 98.9%
  • Houlihan Lokey 11 98.4%
  • JPMorgan 01 97.8%
  • Goldman Sachs 01 97.3%

Total Avg Compensation

July 2025 Investment Banking

  • Vice President (14) $321
  • Associates (60) $237
  • 3rd+ Year Analyst (9) $210
  • Intern/Summer Associate (14) $167
  • 2nd Year Analyst (33) $166
  • 1st Year Analyst (99) $145
  • Intern/Summer Analyst (100) $103
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
BankonBanking's picture
BankonBanking
99.0
4
Betsy Massar's picture
Betsy Massar
98.9
5
DrApeman's picture
DrApeman
98.9
6
dosk17's picture
dosk17
98.9
7
CompBanker's picture
CompBanker
98.9
8
GameTheory's picture
GameTheory
98.9
9
kanon's picture
kanon
98.9
10
bolo up's picture
bolo up
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”