Reading 55: Mortgage-Backed Sector of the Bond Market-LOS l credit, center, commercial, 2010

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Session 15: Fixed Income: Structured Securities
Reading 55: Mortgage-Backed Sector of the Bond Market

LOS l: Distinguish credit risk analysis of commercial mortgage-backed securities (CMBS) from credit risk analysis of residential nonagency mortgage-backed securities.

 

 

 

When assessing credit risk for a Commercial Mortgage-Backed Security (CMBS), the underwriter will complete which of the following financial analysis?

A) Compute a weighted debt service coverage ratio (DSC ratio) for the overall portfolio.

B) Both of the answer choices are correct.

C) Compute the DSC ratio for each property in the CMBS.

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Financial analysis of the DSC ratio for each property in the CMBS and analysis of the DSC ratio for the overall portfolio are both completed by the underwriter when assessing credit risk for a CMBS.

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Which of the following is the primary difference between residential Mortgage-Backed Securities (MBS) and Commercial Mortgage-Backed Securities (CMBS) credit risk?

A) Residential credit risk is difficult to quantify because of the nature of the residential borrower.

B) Residential credit risk does not use financial ratio analysis for the determination of borrower credit worthiness.

C) In residential MBS securities, the lender has the ability to seek repayment from the borrower beyond the value of the collateral.

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All CMBS mortgages are non-recourse loans; however, the residential mortgage lender can go back to the borrower personally in an attempt to repay a delinquent mortgage loan.

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When assessing credit risk for a commercial mortgage-backed security (CMBS), the underwriter will calculate which of the following ratios?

A) Both the debt-to-service coverage ratio and the loan-to-value ratio.

B) Loan-to-value ratio only.

C) Debt-to-service coverage ratio only.

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When assessing credit risk for a CMBS, the underwriter will complete both the debt-to-service coverage ratio and the loan-to-value ratio.

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A distinguishing characteristic of a commercial mortgage-backed security (CMBS) as compared to residential mortgages is:

A) Residential mortgages are non-recourse.

B) Both CMBS and residential mortgages are non-recourse.

C) CMBS are non-recourse.

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CMBS are non-recourse. Residential mortgages are recourse, meaning that the lender can go back to the homeowner for payment if the collateral is insufficient.