What is 'contraction risk' in the context of mortgage-backed securities?
Explanation
Contraction risk shortens the life of the MBS, forcing reinvestment at lower rates.
Other questions
What is the primary benefit of the securitization process for the economy and financial markets?
In a securitization transaction, which entity is responsible for collecting payments from borrowers and handling delinquencies?
Which feature best describes a 'bankruptcy remote' entity in the context of asset-backed securities?
In a structure with time tranching, how are principal repayments typically distributed?
A senior/subordinated structure in an asset-backed security is primarily used to redistribute which type of risk?
Which ratio is calculated as the loan amount divided by the value of the collateral property?
What is the primary characteristic of a nonrecourse mortgage loan?
Which of the following is considered an agency RMBS issuer backed by the full faith and credit of the U.S. government?
Why is the pass-through rate on a mortgage pass-through security typically lower than the weighted average coupon (WAC) of the underlying loans?
If a mortgage pool's Conditional Prepayment Rate (CPR) is expected to match the PSA standard benchmark, the PSA is said to be:
Which statement best describes the Single Monthly Mortality (SMM) rate?
In a sequential pay CMO with two tranches (Tranche A and Tranche B), which tranche has the greatest contraction risk?
What is the primary purpose of a Planned Amortization Class (PAC) tranche in a CMO?
Which CMO tranche absorbs prepayment risk in excess of the PAC collar?
If a CMO's prepayment speed falls outside the initial PAC collar, the PAC tranche is referred to as:
Internal credit enhancement for non-agency RMBS includes which of the following?
The 'shifting interest mechanism' in a senior/subordinated structure is designed to:
Commercial mortgage-backed securities (CMBS) loans are typically:
Which ratio is used to assess the credit risk of a commercial property by comparing net operating income to debt service?
Which CMBS call protection mechanism involves replacing the mortgage collateral with a portfolio of government securities?
What is 'balloon risk' in a commercial mortgage?
Auto loan ABS are typically backed by which type of assets?
During the lockout period of a credit card ABS, principal payments made by cardholders are:
Which entity manages the portfolio of debt obligations in a Collateralized Debt Obligation (CDO)?
What distinguishes a covered bond from a standard asset-backed security?
In a CDO structure, the tranche that absorbs the first losses is called the:
Structured finance CDOs are collateralized by which assets?
If a mortgage has a balloon payment equal to the original loan principal, it is best described as:
The risk that principal repayments will be slower than expected is known as:
Which of the following is a motivation for issuing a Collateralized Mortgage Obligation (CMO)?
In a CMBS, what is the 'equity tranche' often referred to as?
A 'hard-bullet' covered bond is defined as:
Which of the following describes 'structural subordination'?
What is the weighted average maturity (WAM) of a mortgage pool?
A 'strategic default' occurs when:
In a credit card ABS, what happens if an 'early amortization' trigger is hit?
Synthetic CDOs differ from cash CDOs because the collateral consists of:
For a lender, a loan with a lower Loan-to-Value (LTV) ratio generally implies:
A mortgage that allows the borrower to switch from a fixed rate to an adjustable rate is called:
In a waterfall structure, the 'first-loss' piece is typically held by:
A 'prime' mortgage loan is characterized by:
Which of the following is NOT a benefit of securitization?
A 100 PSA prepayment speed implies that the prepayment rate (CPR):
Which of the following creates a 'flow' of funds to the different tranches in a securitization?
Generally, as the Loan-to-Value (LTV) ratio increases, the probability of default:
In a credit card ABS, the interest rate paid to investors is:
A Collateralized Bond Obligation (CBO) is a type of CDO backed primarily by:
Which form of CMBS call protection requires the borrower to pay a penalty equal to the present value of lost interest cash flows?
The 'average life' of a mortgage-backed security will likely decrease when: