whole loan Vs Subprime securitization desk

Whole Loan is actually trading an individual mortgage. Say the 10MM mortgage on a house in Old Westbury, NY. Subprime was trading securities such as Alt-A loans. There is not a lot of subprime trading going on.

In Mortgage trading there is the CMBS desk, which trades and structures Commercial MBS. Also, part of CMBS is the deal team which works to buy loans/talk with clients about securitizing assets.

There is the Agency Pass Through sesk and CMO desk. The PT desk is the standard MBS trading desk (think of them as spot) they trade securities from the individual agencies (Fannie, Freddie, Ginnie). There is more to it, but when a loan is securitized, it is put into a specific pool. Each pool has certain characteristics that affect its prepayments and price ..ie a pool with high LTVs is more valuable because borrowers prepay faster when rates rise (through defaults) and pay slower when rates fall (they can't refi). The MBS market functions through TBAs. A TBA is essentially a future contract that facilities liquidity in the market. Rather than have the analyze individual pools, a TBA gives the investor expose to a particular agency and coupon. So FN 4 TBA would be the Fannie 4% coupon. On delivery, the investor could get any combination of Fannie 4% pools. The person on the other side will attempt to deliver the worst FN 4 pools they have (ie try to keep high LTV pools for themselves), but there is still strict quality guidelines that have to be followed for delivery. Spreads are tight, but they do a lot of volume.

A CMO desk buys pools from the PT desk and will structure the bonds into new bonds. Since no one wants a 30yr MBS bond, the CMO desk takes the pools and will make a 2 yr bond or a 7 yr bond with an IO. The 2yr bond will probably go to another bank, while a HF might take the IO. CMO desk is a lot of arbitrage. They buy the pools for 50mm and all the pieces they create are worth 51mm. Spreads can be very wide.

There is also the Non-Agency desk which trades CMOs, PT, and other non-agency products. Unlike agency products, they have to worry about credit risk.

ABS--trades student loans, credit cards, auto loans,ect. Usually does a lot of volume

Those above 5 are the major desks for a mortgage group.