Mortgage Backed Securities Simulation

• Evaluate a pool of residential mortgage loans using credit and geographic data

• Simulate cash flows under different prepayment and default scenarios

• Design tranches with different risk-return profiles

• Apply credit enhancements to improve creditworthiness and ratings

• Price the tranches based on investor appetite and market conditions

• Prepare investor presentations or internal memos justifying their structure

Through this simulation, students gain an applied understanding of mortgage-backed securities, including how to:

• Assess the credit quality and risks embedded in mortgage loan pools

• Use prepayment models to forecast principal flows

• Build and defend structured bond tranches based on investor needs

• Balance returns, liquidity, and risk across senior and subordinate tranches

• Communicate complex financial structures with clarity and transparency

• Reflect on the regulatory and systemic role of MBS in financial markets

• Do students need prior knowledge of structured finance or MBS? No. The simulation introduces all key concepts, including amortization, tranching, and prepayment behavior, through intuitive onboarding.

• What types of mortgage loans are included? The simulation includes both prime and subprime residential mortgage pools, with varied borrower profiles and geographic distributions.

• How is prepayment modeled? Students can use PSA speeds or adjust prepayment assumptions manually to see how behavior affects cash flows and tranche timing.

• Can students simulate defaults and delinquencies? Yes. The platform allows scenario-based stress testing and lets students examine the effects of higher delinquency rates and economic downturns.

• Does the simulation include regulatory content? Yes. There are optional modules exploring agency vs non-agency MBS, post-crisis reforms, and capital treatment under Basel rules.

• Is it better for individual or team-based play? Both work well. Teams often reflect real-world structuring desks, with students taking on roles like modeling, credit, and investor relations.

• What is the typical duration of the simulation? 2.5 to 4 hours for a complete MBS structuring cycle. It can also be broken into modules over several sessions.

• How is student performance assessed? Assessment is based on tranche design, pricing logic, structural soundness, risk-adjusted return, and clarity of presentation.

• Does the simulation require Excel or programming? No coding is required. All calculations, modeling, and scenarios are managed within the simulation interface.

• Can instructors customize mortgage pool inputs? Yes. Instructors can select from a library of mortgage pools or upload custom loan data for their specific teaching context.