Learning Module 17 Fixed-Income Securitization

Which party in a securitization purchases the assets from the originator and issues the ABS to investors?

Which of the following is a main benefit of securitization for the original asset originator?

In a typical securitization with tranches A (senior), B (mezzanine), C (junior), which tranche absorbs the first dollar of principal loss?

Which internal credit enhancement is described by 'collateral in the pool exceeds the face value of issued bonds'?

If a credit card receivable ABS has a three-year revolving period followed by a six-year amortization period, what happens to principal repayments during the revolving period?

Which covered bond redemption regime delays payment acceleration until a new final maturity date (often up to one year later)?

An investor buys a PO (principal-only) tranche in a CMO. If interest rates fall and prepayments accelerate, what is the most likely effect on the PO tranche value?

Which statement best describes the 'true sale' legal objective in securitization?

Which risk is most directly reduced by subordination in a securitization?

An RMBS pool has WAC 4.50% and servicing fees of 0.50%. What is the approximate pass-through net coupon rate paid to securityholders (ignoring other fees)?

Which security type typically remains on the issuer’s balance sheet and gives investors dual recourse?

Which of the following is the best description of excess spread in securitization?

Which tranche in a sequential-pay CMO receives principal payments first until retired?

An investor wants protection from contraction risk (shorter life when prepayments accelerate). Which CMO tranche characteristic should they prefer?

Which of the following best explains why agency RMBS typically have lower credit risk than non-agency RMBS?

A solar ABS issue has EUR320 million of loans backing EUR300 million of notes (collateral = EUR320m, notes = EUR300m). What is the overcollateralization ratio (collateral divided by notes)?

Which of the following best describes a CLO manager’s role?

Which legal or structural feature most directly protects SPE assets from originator creditors in bankruptcy?

In the context of ABS, what does 'expected loss' (EL) equal?

A CMBS loan’s DSCR is 1.61x (NOI = 7.59m, debt service = 4.717169m). Which statement is correct?

Which of the following is most likely to cause contraction risk to increase for an RMBS pool?

Which of these is an example of an external credit enhancement?

An investor is concerned about issuer bankruptcy risk of the originator after buying ABS. Which structural feature most directly mitigates this concern?

Which ABS feature best helps institutional investors match long-term liabilities and improve liquidity compared with direct loan ownership?

Which of these describes a Z-tranche in a CMO?

A collateral pool has 45,000 car loans with an average balance of EUR22,222. What is the approximate outstanding principal balance of the pool?

Which of the following most likely caused a spike in yield demanded on Volkswagen auto ABS in 2015?

Which ABS type typically trades most like corporate bonds due to call protection?

Which metric best indicates how soon an RMBS is likely to repay on average given expected prepayments?

An investor buys a senior tranche in a securitization that is rated Aaa/AAA due to overcollateralization and subordination. Which factor would most likely cause rating agencies to notch the issue down relative to the issuer rating?

If a mortgage loan is non-recourse, what ability does the lender typically NOT have after foreclosure?

Which arrangement provides the most direct liquidity improvement for a bank originating many illiquid loans?

A CLO is constructed with USD700m of debt promised to noteholders and USD840m of loan collateral purchased. What is the overcollateralization ratio?

Which of the following is a primary difference between non-amortizing credit card collateral and amortizing auto loan collateral in ABS structures?

Which statement about recovery rates by seniority is true according to historical data presented?

Which statement best describes 'structural subordination'?

Which of the following is LEAST likely to be a characteristic of a residential mortgage-backed pass-through security?

Which of the following increases expected recovery for senior unsecured creditors in a securitization where a portion of collateral is pledged as security to senior secured creditors?

Which product is most often used by banks to raise long-term funding while retaining loans on their balance sheet?

A deal has CHF925m receivables and issues CHF900m ABS. What is the percent overcollateralization (collateral minus notes) divided by notes?

Which of the following best explains why some non-agency RMBS were more fragile in the 2007–2009 crisis?

Which of the following describes 'defeasance' in CMBS loans?

Which tranche in a CLO typically earns equity-like returns and bears residual cash flow risk?

Why must investors evaluate legal frameworks in jurisdictions where they buy ABS?

Which of the following is most likely a reason a company would issue secured notes backed by specific vessels during a crisis (example: cruise lines during COVID-19)?

Which securitized product commonly uses a pre-funding period to acquire additional qualifying assets after closing?

Which of the following best describes 'balloon risk' in CMBS?

A securitization’s prospectus typically includes which of the following?

Which of the following is most likely to increase recovery rates on a subordinated bond in a securitization?

An investor looks at two ABS: one backed by a concentrated pool of 3 large commercial loans and one backed by 1,000 small residential loans. Which statement is correct about relative idiosyncratic risk?