Which tranche in a securitization structure is typically the first to absorb losses?
Explanation
Subordination places the equity tranche in the first-loss position.
Other questions
What is the primary role of the Special Purpose Entity (SPE) in a securitization transaction?
Which of the following best describes 'bankruptcy remoteness' in the context of securitization?
How do Covered Bonds differ from traditional Asset-Backed Securities (ABS) regarding the balance sheet?
What type of recourse do investors in Covered Bonds possess?
Which redemption regime converts a covered bond into a pass-through security if the original maturity is missed?
In the context of credit enhancement, what is 'Overcollateralization'?
What is the 'waterfall' structure in a securitization?
What is the primary benefit of securitization for the issuer (bank)?
In a credit card ABS, what is the 'lockout period'?
What triggers the end of the lockout period and the start of principal distribution in a credit card ABS?
Which of the following is considered an amortizing asset in ABS?
What is the Loan-to-Value (LTV) ratio?
In a residential mortgage, what does a lower LTV generally imply?
What defines a 'strategic default' by a borrower?
What is the difference between Agency RMBS and Non-Agency RMBS in the US?
What is 'contraction risk' in the context of RMBS?
What is the primary purpose of a Collateralized Mortgage Obligation (CMO)?
In a Sequential-Pay CMO, how are principal payments distributed?
What is a 'Z-tranche' in a CMO structure?
How does the value of a Principal-Only (PO) security react to falling interest rates?
Why might an Interest-Only (IO) security have a negative duration?
What is the function of a Planned Amortization Class (PAC) tranche?
What does the Debt Service Coverage Ratio (DSCR) measure in CMBS analysis?
Which feature essentially distinguishes CMBS from RMBS regarding prepayment?
What is 'Defeasance' in a CMBS?
What is 'Balloon Risk' in a CMBS?
What is a Collateralized Debt Obligation (CDO) generally backed by?
What is the role of the Collateral Manager in a CDO/CLO?
What are Solar ABS typically collateralized by?
In Solar ABS, what is the 'Pre-funding period'?
Which entity in a securitization is known as the 'disinterested trustee'?
What is 'Excess Spread'?
What is a 'Pass-Through Rate'?
Which risk is defined as the uncertainty regarding the receipt of cash flows due to the option to pay off a loan early?
What is the primary difference between a 'recourse loan' and a 'non-recourse loan'?
What is 'Time Tranching'?
What is the 'Weighted Average Maturity' (WAM) of a mortgage pool?
Which agency carries the 'full faith and credit' of the US government?
In a CDO, which test ensures that the assets exceed the liabilities?
What happens if a CLO manager fails an overcollateralization test?
What is the 'equity' tranche in a CLO primarily designed to provide?
Which of the following is an example of external credit enhancement?
What is 'Yield Maintenance' in CMBS?
What is the typical amortization structure of a Commercial Real Estate (CRE) loan?
Which ratio assesses the borrower's ability to cover monthly debt payments from gross income in residential lending?
In the context of 'Support Tranches' in a CMO, what is their primary function?
What is the 'Extension Risk' associated with MBS?
What is a 'workout period' in CMBS?
Why do banks use Securitization to improve profitability?