The rearranged cash flows from mortgage backs enables the structurer to make many different types of securities, some of which are appropriate investments for a foundation, some of which are not. If your asset manager or broker does not understand the complexities of these new securities, you may be invested in inappropriate pieces and none of you are aware. Not until there are significant defaults or interest rate shifts, both of which we are experiencing now, will you know, and by then it is probably too late.
- What exactly do you own? Is it collateral or is it structure? What types of mortgages?
- How will it perform in a volatile interest rate environment? (Prepayments/Defaults)
- At what price do you own it? (Extent of Premium or Discount)