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

A)   Residential MBS credit risk is essentially the same as CMBS credit risk.

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

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

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

2.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)   All of the answer choices are correct.

C)   Review the dispersion of DSC ratios for the underlying properties.

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

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

A)   Residential MBS credit risk is essentially the same as CMBS credit risk.

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

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

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

The correct answer was D)

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.

2.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)   All of the answer choices are correct.

C)   Review the dispersion of DSC ratios for the underlying properties.

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

The correct answer was B)

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