Function documentationAsset-Backed Securities and Mortgage-Backed Securities

 

Asset-backed securities (ABS) and mortgage-backed securities (MBS) are securities for which payments are hedged with an asset pool. In the case of ABS, the asset pool contains receivables, whereas, in the case of MBS, the asset pool contains receivables hedged by a mortgage.

ABS and MBS are generally securities repaid by installments that may change depending on how the borrows pay back the underlying loans, for example.

You can use the Transaction Manager to do the following:

  • Portray ABS/MBS with installments calculated using the linear calculation method.

    This method assumes that the repayments are made in linear fashion and calculates the future repayment flows accordingly.

  • Portray ABS/MBS with installments calculated using the CPR or PSA calculation method.

    This method calculates the future repayment flows on the basis of statistical parameters (such as CPR/PSA values) that you receive from your data supplier, whereby this data can change repeatedly during the term of the security.

    • CPR Value

      The CPR value specifies the probable amount of the monthly advance repayment. The value is determined using the historic market data for similar loans. The CPR value is quoted in percent.

    • PSA Value

      The PSA model assumes that the amount of the advance repayments of loans increases over the first 30 months before becoming constant thereafter.

    The mathematical relationship between the PSA value and the CPR value is as follows:

    • If the age of the MBS is less than 30 months, the relationship between PSA and CPR is expressed thus: PSA = CPR / (0.002*number of the repayment month)

    • If the age of the MBS is equal to or greater than 30 months, the relationship between PSA and CPR is expressed thus: PSA = CPR/0.06

    Other than the CPR/PSA value, the following values are also required in calculating the advance repayments:

    • Original Values at the Time of Issue

      • Original WAC

        Weighted gross average interest of the loans in the MBS

      • Original Net Interest

        Net interest at the time when the security was issued

      • Original WAM

        Weighted number of months until the loans have been paid back completely at the time of issue

    • Current values that are valid when the factor is published

      • WAC

        Weighted gross average interest of the loans in the MBS

      • Net interest

        Current net interest of the security

      • Age (only required for the PSA method)

        Specifies for how many months the ABS/MBS has been running

      • WAM

        Weighted number of months until the loans have been paid back completely

Integration

  • You can also portray ABS/MBS emissions. (See also: Bond Issue).

  • The system does not allow you to portray the securitization of the underlying receivables.

  • You can also use the position management functions for loans with installment repayment from SAP Loans Management.

Prerequisites

You need to set up the product types for ABS/MBS in Customizing. See also: ABS/MBS: Customizing

Features

Special Functions

  • Since it can be the case with ABS/MBS that the issuer retrospectively makes changes to repayments that have already been made, such changes can also be portrayed.

    See also:

    ABS/MBS: Retrospective Changes to Repayments

  • It is possible to portray a period without repayments at the start of the term.

  • You can portray interest capitalization by also allowing factor increases for a tranche in Customizing.

  • To simplify entering interest flows and repayment flows, you have the option of copying the dates from the interest condition and applying them for the repayment flows (using the Int.Cond.Template indicator). For each interest flow, the system creates a corresponding repayment flow with the following dates:

    • Effective date of the repayment = (changed) calculation date of the interest flow

      The effective date of the repayment flow is the start date of the next month in which the interest calculation date falls on the month-end date (since repayments are published on the first day of the month).

    • Payment date of the repayment = due date of the interest flow

    If you do not want to use the interest condition as a template, you have to make the settings for the repayment condition (such as the payment frequency) separately.

Process Overview

  • Master Data

    You need to enter or regularly update the class data either manually using the activity Create/Change Class (transaction FWZZ) or using the following BAPIs:

    • BUS1076 FinancialProduct

    • BUS1074 RedemptionSchedSet

    • BUS1064 Create and Change RedemptionFactors.

    See also:

  • Transaction Management

    You buy and sell ABS/MBS using the transaction management functions in the Transaction Manager. To use the transaction management functions, choose Start of the navigation path Transaction Manager Next navigation step Securities Next navigation step Trading/Back Office End of the navigation path (Create Transaction, transaction FTR_CREATE, or Change Transaction, transaction FTR_EDIT).

    Note Note

    When you enter a transaction, enter the original nominal (nominal without existing installment repayments). The system uses the class data to calculate the nominal. You can change this nominal without any restrictions.

    End of the note.

  • Securities Account Management

    The system uses the information in the current redemption schedule to create the flows for the installment repayment. You can change the nominals in the manual debit position without any restrictions.

    See also: Securities Account Management

  • Position Management

    You need to use position management procedure 8 for ABS/MBS positions. However, it is also possible to assign position management category 1 to the positions in position management (see also: SAP Note 1666075Information published on SAP site)

    • Adjustments to the Amortized Purchase Value After a Repayment

      The complete reduction of the amortized purchase value is based on the planned repayment rate.

      Example Example

      The planned repayment amount is 100 USD, which causes a change in the nominal value by 100 USD (this corresponds to a planned repayment rate of 100%). When the repayment is posted manually (transaction FWZE), the amounts are changed so that the repayment amount is 80 USD and the nominal amount is reduced by 90 USD. Since the planned repayment rate is 100%, the translation of the amortization is 90 USD (= 90 USD * 100%). This causes a reduction of the amortized purchase value by 90 USD and a rate loss of 10 USD if the position component security valuation is zero.

      End of the example.

    • Valuation

      You perform valuation for the ABS/MBS positions using the standard function Run Key Date Valuation (transaction TPM1).

  • Functions for Transfer Postings

    For the securities account transfer posting and the valuation class transfer posting, the system uses the original nominal amount as the quantity information.

  • Manual Corporate Action

    You can create a manual corporate action for ABS/MBS positions.

  • Evaluations

    • In the flow lists (such as transaction TPM13), you can analyze the original nominal.

    • In the position list (transaction TPM12), you can also display the repayments made.

    • You can analyze position information (amortized costs, book value, market value) in the ABS/MBS Positions transaction (S_AEN_10001020). For this evaluation, the system uses the logical database FTI_TR_POSITIONS.