In 1991, he was PaineWebber Group Inc.'s top salesperson for collateralized mortgage obligations
. But he shot his first bull's-eye while working at Citibank's capital markets before joining PaineWebber in 1986.
In the world of collateralized mortgage obligations
identifying the real source of high yield means learning to separate principal and interest in the most profitable way.
* Collateralized mortgage obligations
arbitrage -- Here you purchase both CMO residuals and principal-only pieces in correct proportions, so that the interest-rate sensitivities of these two pieces offset each other, while still maintaining a high yield in the combined position.
These assets, which include government-guaranteed collateralized mortgage obligations
and mortgage pass-through securities, rose nearly 24 percent.
"You can't close a deal that involves a parcel of collateralized mortgage obligations
, for example, unless the underlying property is free from environmental liability," Murphy said.
Credit unions also had $17.8 billion in derivatives, including collateralized mortgage obligations
, real estate mortgage investment conduits, stripped mortgage securities and residual obligation instruments.
In particular, the innovations of collateralized mortgage obligations
(CMOs) and real estate mortgage investment conduits (REMICs) have resulted in securities that provide different claims and priorities on the principal and interest payments made on underlying loans, thus accommodating the various needs and preferences of investors.
Statement by Richard Spillenkothen, Director, Division of Banking Supervision and Regulation, Board of Governors of the Federal Reserve System, and Donald H. Wilson, Financial Markets Officer, Federal Reserve Bank of Chicago, before the Subcommittee on Policy, Research, and Insurance of the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, May 6, 1992
To assure the balance, a company could build the parts for which the organization is most competent--such as liability modeling--and buy the other parts "off the shelf." For instance, if a company is using asset/liability management for product pricing and it is going to invest in mortgages, it can outsource the modeling of a portfolio of collateralized mortgage obligations
using a product such as BondEdge, a widely used analytical tool for fixed-income investments.
Collateralized mortgage obligations
(CMOs), for example, may have volatility risk profiles many times that of traditional mortgage instruments.
These steps include the following: (1) regulatory reporting requirements that, in general, permit banks to take assets they have originated and securitized off their balance sheets only when they have sold" those assets without recourse; (2) the issuance in 1988 of an interagency supervisory policy statement to address investments in stripped, asset-backed securities and residual interests and a subsequent proposed revision that will address "high risk" collateralized mortgage obligations
; (3) development of examination guidelines addressing various aspects of the securitization process; and (4) development of the risk-based capital framework.
As a result, plan investment managers have searched out more complex strategies, employing collateralized mortgage obligations
, real estate mortgage investment conduits and other specialized and more speculative investment vehicles in a quest for greater returns.