Learning Module 19 Mortgage-Backed Security (MBS) Instrument and Market Features

Which definition best describes contraction risk for residential mortgage-backed securities?

An MBS pool has WAC 4.50% and servicing fees of 0.50%. Which pass-through rate will investors receive, all else equal?

Which metric best estimates when an MBS holder can expect to receive principal under typical prepayment assumptions?

A pool has five mortgages with current balances totaling EUR1,000,000. Mortgage A has balance EUR200,000 and coupon 3.00%. Using current-balance weighting, what component contributes to the WAC from mortgage A?

Which tranche type pays only principal repayments from the underlying pool and is highly sensitive to prepayment speed?

In a sequential-pay CMO, which tranche receives principal repayments first?

Which of the following is not an internal credit enhancement commonly used in securitizations?

A mortgage-backed pool has current balances and months to maturity for each loan. Which weighted measure uses months to maturity and current-balance weights?

Which RMBS sector typically pays the lowest yield all else equal and why?

An investor buys an IO tranche. What happens to its cash flows if prepayments accelerate due to a rate drop?

Which statement correctly contrasts CMBS and RMBS regarding prepayment risk?

Which mortgage feature increases the lender's recourse in the event of borrower default?

If a pool's expected prepayment speeds fall sharply, what is the likely effect on the average lives of longer-dated CMO tranches?

Which CMO tranche type is designed to provide predictable principal payments if prepayments stay within a specified range?

Which of the following best describes a Z-tranche in a CMO?

Which of the following is the primary reason a CMBS investor examines debt service coverage (DSC) for a property loan?

A mortgage loan has loan amount EUR300,000 and property value EUR400,000. What is the LTV and its implication for credit loss severity if foreclosure occurs?

Which action is characteristic of defeasance in CMBS loan documents?

Which of the following best explains why average life differs from legal maturity for an MBS?

In structuring a securitization, what role does excess spread play?

Which tranche is most likely to be unrated and absorb residual cash flows after all scheduled payments?

An RMBS pool includes many small homogeneous loans across the country. Compared with a CMBS with three large loans, what is a likely advantage of the RMBS pool?

Which of the following events most directly increases contraction risk for fixed-rate MBS?

Which of the following structural protections redirects cash to senior tranches if a covenant fails in a CLO or similar securitization?

A CMO has three sequential tranches A, B, and C sized 50m, 30m, and 20m. If rapid prepayments occur shortly after issuance, which tranche(s) see principal retirement quickest?

Which investor is most likely to prefer a short-average-life CMO tranche to avoid extension risk?

Which MBS investor outcome is most directly caused by contraction risk?

Which valuation input must an investor alter to model extension risk for a long-duration MBS tranche?

Which of the following is most likely true about a CMBS loan with a large balloon payment at maturity?

Which structural feature reduces issuer balance-sheet usage but allows investors dual recourse to pool assets and issuer unencumbered assets?

You are analyzing a small CMBS with three loans. Which additional factor is most critical compared with large RMBS?

If a CMBS loan has NOI of EUR1,200,000 and annual debt service of EUR800,000, what is the DSC and interpretation?

Which of the following best describes subordination in a securitization waterfall?

A 30-year option-free corporate bond and a 30-year MBS with identical coupon and credit backing differ in interest-rate risk primarily because:

Which tranche would likely be most affected by an unexpected concentrated default in a small CMBS pool?

Which of the following analyze interest-rate sensitivity specific to MBS because of embedded prepayment options?

Which of the following statements about non-agency RMBS is true?

In an RMBS pool, which borrower-level factor most increases likelihood of voluntary prepayment?

Which of the following is a direct investor protection that overcollateralization provides?

An investor analyzing a solar ABS wants to assess environmental characteristics of collateral. Which structural feature often signals alignment with green investment goals?

Which tranche is most appropriate for an investor seeking protection from contraction risk but willing to accept extension risk?

Which of the following is a direct consequence for holders of a senior tranche if the total collateral losses do not exceed the subordinated tranches' principal?

A securitization has EUR200m collateral and issues EUR150m of notes. What is the overcollateralization ratio (collateral / issued) and its protective implication?

Which is most likely to reduce strategic default incentive for homeowners with negative equity?

An investor holds a PAC tranche. Prepayments remain between the specified minimum and maximum. What role do support tranches play?

Which structural element would most likely be used to make a CMBS attractive to investors by limiting early prepayments?

When modeling MBS cash flows, why is it important to use current balances rather than original balances to compute WAC and WAM?

Which investor type is most suited to buy residual or equity tranches of a CMO?

Which of the following is true about coupon structure differences between typical European CMBS and US CMBS as described in the chapter?

Which action should an investor take first when evaluating a small CMBS deal with only a handful of loans in the pool?