Exam 24: Managing Risk Off the Balance Sheet With Loan Sales and Securitization

A form of trust that can issue multiple class debt securities without having to pay taxes on the interest paid is called a

A bank originates $150,000,000 worth of 30-year single-family mortgages funded by demand deposits and the required amount of capital. Reserve requirements are 10 percent and the bank pays 32 basis points in deposit insurance premiums. The bank is earning a 6.25 percent coupon on the mortgages. The mortgages are priced at par and total monthly payments on the mortgages are $923,576. If the bank can originate and securitize this amount of mortgages with the same terms four times over the next year (including the existing mortgages)and the bank earns a servicing fee each month equal to 3.5 percent of the monthly payments,what will be the bank's monthly fee income 12 months from now?

Fraudulent conveyance proceedings are

In selling loans,FIs act as an asset _____ and in creating CMOs,FIs act as an asset _____.

A CMO is a multiclass pass-through that helps investors choose the amount of prepayment risk they will face.

A bank originates $150,000,000 worth of 30-year single-family mortgages funded by demand deposits and the required amount of capital. Reserve requirements are 10 percent and the bank pays 32 basis points in deposit insurance premiums. The bank is earning a 6.25 percent coupon on the mortgages. The mortgages are priced at par and total monthly payments on the mortgages are $923,576. If the mortgages are securitized and deposits are reduced,how much will the bank save in the first year's reserve requirements and deposit insurance premiums in total?

If mortgage interest rates fall and prepayments occur,the holder of a GNMA pass-through selling at a _____ will have a _____. I. discount; capital gain II. premium; capital loss III. discount; capital loss IV. premium; capital gain

How does mortgage securitization reduce the regulatory tax burden of a depository institution?

Which one of the following forms of securitization is usually "double securitization"?

What are the major factors that are likely to contribute to continued growth in the loan sale market?

In 2008,loan sales primarily consisted of sales of distressed loans.

An advantage of securitization and loan sales over interest rate swaps as a risk-management tool is that securitization,by removing loans from the balance sheet,reduces the regulatory tax imposed by existing regulations.

How does a PAC CMO differ from a sequential pay CMO?

When a vulture fund acquires a distressed loan,the fund usually assists the distressed firm's managers in formulating a long-term plan for restoring profitability.

For a loan sold with recourse,

Under current reserve requirements,bank loan sales with recourse are considered a liability and are subject to reserve requirements.

Loan sales are likely to continue because I. they can increase near-term reported earnings. II. they reduce the amount of capital required. III. more corporate borrowers have access to the commercial paper market.

With a GNMA pass-through,the investor bears ________ of the prepayment risk; with a non-callable mortgage-backed bond,the investor bears _________ of the prepayment risk; and with a CMO,the investor bears ______________ of the prepayment risk.

The FDIC is concerned about issuance of mortgage-backed bonds (MBBs)because

Most loan sales are now accomplished in about 10 days.