Reading 58: LOS k ～ Q1- 4

1.Which of the following statements is least accurate concerning nonagency mortgage-backed securities?

A)   They are issued by private entities.

B)   The cash flows are affected by mortgage default rates.

C)   They usually require credit enhancement.

D)   They are usually backed with “conforming” mortgage loans.

The correct answer was D)

Nonagency mortgage-backed securities are usually backed by “nonconforming” mortgages, such as those that do not meet the underwriting standards of the agencies.

2.All of the following are primary concerns of agency underwriting standards EXCEPT maximum:

A)   loan-to-value-ratio.

B)   purchase price.

C)   payment to income value.

D)   loan amount.

The correct answer was B)

All of the following are primary concerns of agency underwriting standards EXCEPT the maximum purchase price.

3.Which of the following is a difference between agency and nonagency mortgage-backed securities (MBS)? Nonagency MBS:

A)   can be for any type of real estate property.

B)   have no prepayment risk.

C)   have floating mortgage rates.

D)   can only be for commercial real estate property.

The correct answer was A)

For agency MBS the underlying mortgages are 1- to 4-single family residential mortgages only. Nonagency securities exist that are backed by second mortgage loans, manufactured housing loans, and a variety of commercial real estate loans, in addition to single family residential mortgages.

4.All of the following are TRUE regarding nonagency securities EXCEPT:

A)   the collateral behind nonagency collateralized mortgage obligations is passthrough securities.

B)   the collateral behind nonagency CMOs is a pool of loans.

C)   loans used to back nonagency CMOs are referred to as nonconforming loans.

D)   nonconforming mortgage loans fail to meet agency underwriting standards.

The correct answer was A)     

The collateral behind nonagency CMOs is a pool of loans, not passthrough securities.