Exam 26: Securitization Index

The underlying NHA MBS 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 Interest Only (IO) strip?

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

NHA CMHC MBS pass-throughs can assist an FI in resolving duration mismatch and illiquidity risk problems.

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. If the entire mortgage pool is repaid after the second month, what is the second month's (liquidating) principal and interest payments?

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

Which of the following is a primitive form of asset securitization?

All tranches in a collateralized mortgage obligation (CMO) have the same prepayment risk exposure.

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. For the first monthly payment, what are the interest and principal portions of the payment?

An FI operating in the United States funds a US$5 million residential mortgage in 2014 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 to FDIC of 23 basis points. What amount of demand deposits are needed to fund the mortgage?

Which type of loans are securitized most often?

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 present value of the mortgage pass-through if, immediately after origination, interest rates increase to 8.25 percent per annum?

CMHC is a privately-owned entity.

Mortgage-backed bonds (MBB) differ from pass-throughs and CMOs in which of the following ways?

Which of the following best explains the term burn-out factor?

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 annual payments promised to Tranche A and Tranche B, respectively, assuming no prepayments and non-amortization?

CMHC helps create pass-through asset-backed securities by providing timing insurance.

An FI operating in the United States funds a US$5 million residential mortgage in 2014 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 to FDIC of 23 basis points. What would have been the capital requirements if the FI had securitized the mortgage?

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.

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. If at the end of the first year, the CMO trustee receives total cash flows of $15 million, how are they distributed?

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?