Exam 26: Securitization

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 is the principal outstanding on Tranche A and Tranche B after the end of year payment in the previous question?

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

Most mortgage-backed bond issues conducted by depository institutions are under-collateralized.

Which of the following assets have not been securitized by FIs?

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

Why are the class C bonds highly attractive to insurance companies and pension funds?

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.

The packaging of loans into asset pools and then selling portions of the pool to investors is known as

Overseas bank is pooling 50 similar and fully amortized mortgages into a pass-through security. The face value of each mortgage is $100,000 paying 180 monthly interest and principal payments at a fixed rate of 9 percent per annum. -If the entire mortgage pool is repaid at the end of the second month, what is the weighted average life of the mortgage pool?

Why do garbage class bonds often have a negative duration?

An FI funds a $5 million residential mortgage in 2012 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 is the minimum capital requirement on the mortgage in order for the institution to be adequately capitalized?

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

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

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