Question 1

The life of a Structured Investment Vehicle (SIV)is not tied to any particular asset class that it is responsible for securitizing.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following government agencies or government-sponsored enterprises are NOT directly involved in the creation of mortgage-backed pass-through securities?

Accepted Answer

A) Government National Mortgage Association. 
B) Farmers Home Administration. 
C) Federal National Mortgage Association. 
D) Federal Home Loan Mortgage Corporation. 
A) Government National Mortgage Association. 
B) Farmers Home Administration. 
C) Federal National Mortgage Association. 
D) Federal Home Loan Mortgage Corporation.

Question 3

One hundred identical mortgages are pooled together into a pass-through security.Each mortgage has a $150,000 principal,a fixed annual interest rate of 8 percent (paid monthly),and is fully amortized over a term of 30 years.

What is the weighted average life of the above mortgage pool?

Accepted Answer

A) 30 years. 
B) 2 months. 
C) 1.998 months. 
D) 1 month. 
A) 30 years. 
B) 2 months. 
C) 1.998 months. 
D) 1 month.

Question 4

Investors in mortgage-backed pass-through securities are exposed to a variety of risks.Compared to other fixed-income securities,the most unique of these risks is

Accepted Answer

A) prepayment risk. 
B) default risk. 
C) credit risk. 
D) interest rate risk. 
A) prepayment risk. 
B) default risk. 
C) credit risk. 
D) interest rate risk.

Question 5

One hundred identical mortgages are pooled together into a pass-through security.Each mortgage has a $150,000 principal,a fixed annual interest rate of 8 percent (paid monthly),and is fully amortized over a term of 30 years.

What is the monthly payment on the mortgage pass-through if a 44 basis point servicing fee is deducted monthly?

Accepted Answer

A) $105,499. 
B) $114,700. 
C) $11,340. 
D) $1,055. 
A) $105,499. 
B) $114,700. 
C) $11,340. 
D) $1,055.

Question 6

GNMA is more active in the market for mortgage pass-through securities than either FNMA or FHLMC.

Accepted Answer

A) True 
 B)False

Question 7

Mortgage-backed bonds are a form of on-balance-sheet securitization.

Accepted Answer

A) True 
 B)False

Question 8

This is an accrual class of a CMO that makes a payment to bondholders only when preceding CMO classes have been retired.

Accepted Answer

A) Class A bonds. 
B) Class B bonds. 
C) Class C bonds. 
D) Class Z bonds. 
A) Class A bonds. 
B) Class B bonds. 
C) Class C bonds. 
D) Class Z bonds.

Question 9

FNMA securitizes conventional mortgage loans as well as FHA/VA insured loans.

Accepted Answer

A) True 
 B)False

Question 10

Individual mortgage loans in a pool sponsored by FNMA or FHLMC must be non-assumable if the property is sold.

Accepted Answer

A) True 
 B)False

Question 11

One cause of residential mortgage prepayment risk is the sale of the mortgaged property.

Accepted Answer

A) True 
 B)False

Question 12

FNMA supports only those pools of mortgages that comprise mortgage loans whose default or credit risk is insured by one of three government agencies.

Accepted Answer

A) True 
 B)False

Question 13

The following information is for a collateralized mortgage obligation (CMO).Tranche A has a face value of $110 million and pays 5 percent annually.Tranche B has a face value of $90 million and pays 7 percent annually.

What are the annual coupon payments promised to each tranche? (Assume no prepayments and non-amortization of principal. )

Accepted Answer

A)  $5.5 million on Tranche A and $6.3 million on Tranche B. 
B)  $5.5 million on Tranche B and $6.3 million on Tranche A. 
C)  A total of $12 million on both Tranche A and B. 
D)  $4.5 million on Tranche A and $7.7 million on Tranche B. 
E)  $4.5 million on Tranche B and $7.7 million on Tranche A. 
A)  $5.5 million on Tranche A and $6.3 million on Tranche B. 
B)  $5.5 million on Tranche B and $6.3 million on Tranche A. 
C)  A total of $12 million on both Tranche A and B. 
D)  $4.5 million on Tranche A and $7.7 million on Tranche B. 
E)  $4.5 million on Tranche B and $7.7 million on Tranche A.

Question 14

GNMA will sponsor any pool of loans regardless of the size of each individual loan in the pool.

Accepted Answer

A) True 
 B)False

Question 15

A mortgage pass-through strip security is a special type of collateralized mortgage obligation (CMO).

Accepted Answer

A) True 
 B)False

Question 16

All else equal,once a mortgage pool has aged,prior prepayments of mortgages in the pool have no bearing on the current value of the pool or the future prepayment rates of mortgages left in the pool.

Accepted Answer

A) True 
 B)False

Question 17

Which of these CMO bond issues has characteristics of both a zero-coupon bond and a regular bond?

Accepted Answer

A) Class A bonds. 
B) Class B bonds. 
C) Class C bonds. 
D) Class Z bonds. 
A) Class A bonds. 
B) Class B bonds. 
C) Class C bonds. 
D) Class Z bonds.

Question 18

Current statistics show that the servicing fee depository institutions can earn by securitizing through GNMA approximates 44 basis points.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is NOT a factor that may cause the prepayment risk on a pool of mortgages to differ from the PSA's assumed pattern?

Accepted Answer

A) The age of the mortgage pool. 
B) Geographic location. 
C) Seasons in the year in which the mortgage was originated. 
D) Full or partial amortization of the payments. 
A) The age of the mortgage pool. 
B) Geographic location. 
C) Seasons in the year in which the mortgage was originated. 
D) Full or partial amortization of the payments.

Question 20

Unlike GNMA,FNMA will securitize conventional mortgages issued by depository institutions.

Accepted Answer

A) True 
 B)False

Exam 26: Securitization

The life of a Structured Investment Vehicle (SIV)is not tied to any particular asset class that it is responsible for securitizing.

Which of the following government agencies or government-sponsored enterprises are NOT directly involved in the creation of mortgage-backed pass-through securities?

One hundred identical mortgages are pooled together into a pass-through security.Each mortgage has a $150,000 principal,a fixed annual interest rate of 8 percent (paid monthly),and is fully amortized over a term of 30 years. What is the weighted average life of the above mortgage pool?

Investors in mortgage-backed pass-through securities are exposed to a variety of risks.Compared to other fixed-income securities,the most unique of these risks is

GNMA is more active in the market for mortgage pass-through securities than either FNMA or FHLMC.

Mortgage-backed bonds are a form of on-balance-sheet securitization.

This is an accrual class of a CMO that makes a payment to bondholders only when preceding CMO classes have been retired.

FNMA securitizes conventional mortgage loans as well as FHA/VA insured loans.

Individual mortgage loans in a pool sponsored by FNMA or FHLMC must be non-assumable if the property is sold.

One cause of residential mortgage prepayment risk is the sale of the mortgaged property.

FNMA supports only those pools of mortgages that comprise mortgage loans whose default or credit risk is insured by one of three government agencies.

GNMA will sponsor any pool of loans regardless of the size of each individual loan in the pool.

A mortgage pass-through strip security is a special type of collateralized mortgage obligation (CMO).

All else equal,once a mortgage pool has aged,prior prepayments of mortgages in the pool have no bearing on the current value of the pool or the future prepayment rates of mortgages left in the pool.

Which of these CMO bond issues has characteristics of both a zero-coupon bond and a regular bond?

Current statistics show that the servicing fee depository institutions can earn by securitizing through GNMA approximates 44 basis points.

Which of the following is NOT a factor that may cause the prepayment risk on a pool of mortgages to differ from the PSA's assumed pattern?

Unlike GNMA,FNMA will securitize conventional mortgages issued by depository institutions.

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