cross-ied

Which of the following statements regarding Small Business Administration (SBA) loan-backed securities is least accurate?

A) SBA loans are backed by the credit of the U.S. government.

B) Prepayments on SBA loans are not passed through.

C) Most SBA loans are based on the prime rate.

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SBA loans are backed by the credit of the U.S. government. Most SBA loans are variable rate, where the rate is based on prime and reset monthly or quarterly. The investor receives three cash flows: interest, principal repayment and principal prepayments.

cross-ied

Which of the following statements regarding Small Business Administration (SBA) loan-backed securities is least accurate?

A) Loan payments are based on the reference rate at the beginning of each period.

B) Pooled SBA loans are fairly heterogeneous.

C) The interest rate on SBA loans is reset monthly or quarterly.

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Pooled Small Business Administration (SBA) loans must have similar terms and features. SBA loan payments are based on the reference rate at the beginning of each period.

cross-ied

Which of the following statements regarding credit card receivable-backed securities is least accurate?

A) Credit card receivable-backed securities use a master trust structure.

B) Credit card receivable-backed securities pay principal and interest each payment just like a mortgage-backed security.

C) The cash flow to the pool of credit card receivables consists of finance charges, fees, and principal repayment.

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Credit card receivable-backed securities do not pay principal and interest each payment just like a mortgage-backed security. Interest is paid periodically and principal is placed under a lockout period.

cross-ied

Which of the following is referred to as principal-amortization period for a credit card receivable-backed security? The principal-amortization period is the period during which the:

A) principal is no longer reinvested, but paid to investors.

B) principal is reinvested.

C) interest is reinvested.

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Since credit card balances are revolving, principal is not amortized. As such, interest on credit card ABSs is paid periodically and the principal is placed under a “lockout period,” during which time no principal is paid to the ABS holders. Principal payments made during the lockout period are used to purchase additional underlying assets or receivables. Once the lockout period ends, principal payments are passed on to the security holders. This post-lockout period is known as the “principal amortization period.”

cross-ied

Which of the following statements concerning the early amortization trigger for a credit card receivable-backed security is CORRECT? An early amortization trigger leads to:

A) partial default.

B) the principal payments made by credit card holders being reinvested in receivables.

C) credit card tranches being retired sequentially.

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The most frequent trigger is when the 3-month average excess spread earned on the receivables falls to zero or less. When this happens, prepayments are used to retire credit card tranches sequentially, instead of using them to purchase more receivables.

cross-ied

Which of the following is referred to as a lockout period for a credit card receivable-backed security? A lockout period is a specific period of time during which:

A) credit card borrowers are not allowed to make repayments.

B) principal payments made by credit card borrowers are retained by the trustee.

C) interest payments made by credit card borrowers are retained by the trustee.

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Since credit card balances are revolving, principal is not amortized. As such, interest on credit card ABSs is paid periodically and the principal is placed under a “lockout period.” During the lockout period, which may vary from 18 months to 10 years, no principal is paid to the ABS holders. Once the lockout period ends, principal payments are passed on to the security holders.

cross-ied

A home equity loan (HEL) is a loan backed by residential property. Which of the following generally does NOT describe a HEL?

A) It is frequently a first lien on property owned by a borrower with an excellent credit history.

B) The loan often does not meet agency requirements for a qualified loan.

C) It is frequently a first lien on property owned by a borrower with a marginal credit history.

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HELs are frequently a first lien on property owned by a borrower with a marginal credit history, not an excellent credit history.

JustasS

Prepayments for manufactured housing-backed securities are less significant because the underlying loans are not as sensitive to refinancing. This is correct for all of the following reasons EXCEPT:

A) Often borrowers are using Federal Housing Administration (FHA) and Veterans Administration (VA) loans, which prohibit refinancing.

B) Loan balances are usually small, reducing the savings resulting from refinancing.

C) Depreciation of mobile homes in the early years can cause the loan outstanding to be greater than the value of the asset.

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Borrowers are not necessarily borrowing through the FHA or VA, and even if they were, they would not be prohibited from refinancing.

JustasS

Prepayments are more stable for manufactured housing-backed securities (HBS) because:

A) manufactured housing securities have very high interest rates.

B) manufactured housing loans are too large to be marketed separately.

C) borrowers are not sensitive to refinancing since they have few alternative financing sources.

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Manufactured home borrowers are not sensitive to refinancing as they have few alternative financing sources.

JustasS

A closed-end home equity loan (HEL) is a secondary mortgage that is structured like:

A) a variable rate, amortizing loan.

B) a standard balloon payment loan.

C) a standard, fixed-rate, fully amortizing loan.

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Closed-end HELs are structured like standard, fixed rate, fully amortizing loans.