Exam 25: Market for Asset-Backed Securities

The SPV plays a critical role in a securitization because it legally separates the loans and receivables sold to the SPV from the originator and therefore reduces funding costs because investors look to the credit risk of the collateral rather than the credit risk of the originator.

________ do not have a schedule for the periodic payments that the individual borrower must make and requires that the borrower make a minimum periodic payment.

In addition to the administration of the loan portfolio, the ________ is responsible for distributing the proceeds collected from the borrowers to the different bond classes in the structure according to the cash flow waterfall.

The assets that are securitized can have a fixed rate or a floating rate, which in turn impacts the structure in terms of the coupon rate for the bonds issued. Illustrate this.

The underlying principle of ________ is that a large number of borrowers in a pool will reduce the ________ via diversification.

Which of the below statements is FALSE?

There are benefits of securitization causing no concerns about its impact.

The responsibilities of the ________ are to represent the interests of the bond classes by monitoring compliance with covenants and in the event of default to enforce remedies as specified in the governing documents.

Securitizations require credit enhancement and the mechanism for credit enhancing a structure are classified as internal and external.

External credit enhancement involves a guarantee from a third party. The most common form of external credit enhancement is ________.

In regards to credit card receivable-backed securities, which of the below statements is FALSE?

In creating the various bond classes (or tranches) in a securitization, there will be rules for distribution of principal and interest. In regards to the transaction structure of an ABS, which of the below statements is FALSE?

The Small Business Association loan-backed securities are backed by loans made by SBA lenders to qualified businesses but not backed by the full faith and credit of the government.

In considering the structure, the rating agencies will consider ________.

The two types of assets that can be used as collateral for an asset-backed securitization are ________.

Evaluating asset risks involves the analysis of the credit quality of the collateral and consider s the underlying borrower's ability to pay but not the borrower's equity in the asset.

Due to the ________, quality of the collateral, and credit enhancement, a corporation can raise funds via a ________ where some of the bond classes have a credit rating better than the corporation seeking to raise funds and where in the aggregate the funding cost is less than issuing corporate bonds.

Investors in ABS are exposed to ________ and rely on ________ to evaluate that risk for the bond classes in a securitization.

There are four principal reasons why a corporation may elect to raise funds via a securitization rather than a corporate bond. One of these reasons includes ________.

In regards to auto loan-backed securities, which of the below statements is TRUE?