Exam 26: Securitization

The underlying GNMA 15-year mortgage pool has a principal amount of $50 million and an annual yield of 6 percent (paid monthly).Assume that there are no prepayments. What is the first monthly payment on the Principal Only (PO)strip?

Prepayment models are attempts by professional mortgage portfolio managers to estimate the rate of prepayment on given mortgage pools.

Which of the following factors occurred in the early 2000s and created concerns about the ability of Fannie Mae and Freddie Mac to manage their portfolios of assets?

An FI funds a $5 million residential mortgage in 2017 by allocating capital and by issuing demand deposits.The mortgage represents a loan-to-value of 70 percent.The demand deposits have a reserve requirement of 10 percent and a deposit insurance premium of 23 basis points. What would have been the capital requirements if the FI had securitized the mortgage?

GNMA pass-through can assist an FI in resolving duration mismatch and illiquidity risk problems.

Mortgage pools that are assumed to prepay at a rate of speed that is more rapid than the PSA model would indicate,are said to prepay at less than 100 percent PSA behavior because the mortgage life and balance will exist for a longer time.

CMOs are typically created from existing GNMA pass-through securities that are held in trust.

A commercial bank operating under an originate-to-distribute model is acting most like

The following information is for a collateralized mortgage obligation (CMO).Tranche A has a face value of $50 million and pays 6 percent annually.Tranche B has a face value of $50 million and pays 8 percent annually.All mortgages have maturities of 30 years. What are the principals outstanding on Tranches A and B,respectively,after the CMO distributes the $10 million of cash flows?

Which of the following is an incentive to securitize mortgage assets?

Full amortization of a thirty-year fixed rate mortgage means that monthly payments are equal and include both principal and interest.

Mortgage-backed bonds differ from CMOs and pass-through securities in that there is no direct link between the cash flows on the mortgages and the interest and principal payments on the bonds.

Certificates of Amortizing Revolving Debts are asset-backed securities that have a claim on automobile installment loans.

Servicing a pass-through security refers to

Which type of loans are securitized most often?

One difference between a special purpose vehicle (SPV)and a structured investment vehicle (SIV)is

The call option held by the residential mortgage holder is in the money when market interest rates are less than the interest rate on an existing mortgage.

The characteristics of a Collateralized Mortgage Obligation (CMO)securities issue include all of the following EXCEPT

The securities that form a GNMA pass-through are U.S.Treasury bonds,bills,and notes.

A bad news effect of increased mortgage prepayments on a mortgage pool caused by decreasing market interest rates includes a reduction in the discount rate on the mortgage cash flow.