With the increasing interest in securitizing hybrid ARMs - loans which combine fixed-rate, front-end cashflows and floating-rate, back-end cashflows - comes the development of Forward Mortgage Agreements (FMA), according to a recent Bear Stearns report.

An FMA allows one to distinguish between fixed-rate and floating-rate cashflows. Normally investors have an appetite only for either fixed-rate or floating-rate securities, not a combination of both. By structuring an FMA, underwriters can target investors who are interested in either cashflows.

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