| Which of the following best describes the relationship between the MBS passthrough and CMO and an ABS paythrough? An ABS paythrough structure is:
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A) |
created from an ABS passthrough structure in the same way a CMO is created from an MBS passthrough. | |
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B) |
similar to an MBS passthrough security except when using non-agency-based mortgages as collateral. | |
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C) |
created directly from the underlying loans unlike the way a CMO is created from an MBS passthrough. | |
A CMO is a paythrough structure. A pool of passthrough securities serves as collateral for CMO paythrough securities. In the ABS market, once the loans are pooled, either passthrough or paythrough securities may be issued – it is not necessary to first create passthroughs when creating a paythrough structure for an ABS. (Study Session 15, LOS 55.g)
An investor who wants to avoid extension risk wishes to purchase securities from one of the ABS tranches listed above. Which of the following is the most appropriate choice for inclusion in his portfolio?
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A) |
The senior tranche from the loan detailed above. | |
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B) |
An equal allocation to the senior tranche and each of the subordinated tranches from the loan detailed above. | |
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C) |
Subordinated tranche 3 from the loan detailed above. | |
Investors with short time horizons and a need for current income wish to avoid extension risk. The senior tranche from the above loan pool offers a chance to collect high prepayments during the first several years (see table 3). The subordinated tranches are protected from contraction risk in the early years, and do not meet the investor’s needs. (Study Session 15, LOS 55.g)
Suppose all of the securities in Table 1 were backed by auto loans. Which of the following statements most accurately describes the difference, if any, in prepayment characteristics of auto loans versus mortgages? Prepayments on auto loans:
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A) |
rarely occur, since auto loans traditionally have short maturities and low interest rates. | |
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B) |
occur frequently, but are rarely affected by refinancing. | |
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C) |
are affected by the same factors as mortgage prepayments. | |
Car loans tend to balances that are small enough so that the benefits from refinancing are small. Auto-loan prepayments occur whenever a car is sold, traded in, or wrecked—all of which are relatively frequent occurrences. Consequently, they are not affected by all the same underlying factors as mortgage loans. (Study Session 15, LOS 56.e)
Based on the information in the tables above, which investment offers the most protection against default?
Loan group 4 has the highest excess servicing spread (9.20 ? 8.20 ? 0.50 = 0.50 or 50 bp excess servicing spread), which allows for the largest reserves against losses. The tranches offer protection against expansion or contraction risk, but probably have similar characteristics in terms of default risk. (Study Session 15, LOS 56.d) | 
发表于 2011-3-23 14:22
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