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Exam (elaborations)

REE 5205 Final Exam with Complete Solutions

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REE 5205 Final Exam with Complete Solutions On a simple MPT how is a coupon calculated Answer-lowest note rate in pool minus service and guarantee fee Reasons for trade outside of TBA market Answer-1. Pools with favorable attributes 2. Non-deliverable pools What is the purpose of a Z tranche...

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  • August 8, 2024
  • 13
  • 2024/2025
  • Exam (elaborations)
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  • ENWC
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REE 5205 Final Exam with Complete Solutions



On a simple MPT how is a coupon calculated Answer-lowest note rate in pool minus
service and guarantee fee




Reasons for trade outside of TBA market Answer-1. Pools with favorable attributes

2. Non-deliverable pools




What is the purpose of a Z tranche Answer-real CFs go to priority classes. It works as a
neg am. A Z tranche helps to shorten the average life and the life variability in the pool to
reduce extension risk




What purpose does a scalar service in floater/inverse floater Answer-used by lenders to
hedge portfolios. Purchase a floater if you expect rates to rise. Purchase an inverse floater if you
expect rates to fall.




What are 2 types of loan delivery Answer-1. whole loan conduit

2. lender swap




What are two types of whole loan execution Answer-1. mandatory commit

2. best effort commit

, REE 5205 Final Exam with Complete Solutions

Two types of MPT trades Answer-1. TBA

2. Specified Pool




3 types of loan servicers Answer-1. Primary

2. Master

3. Special




3 types of private label CMBS deals Answer-1. Conduit

2. large loan

3. SASB




Compare guarantee fees of GNMA vs. GSE Answer-6 BPS for GNMA; varies for GSEs




Contraction Answer-Contraction is when the life of a security is shorter than expected
because falling rates increase prepayment speed




Extension Answer-extension risk is when the life of a security is longer than expected du
to higher rates. Prepayment decreases.




How does default affect discount bonds Answer-yield increases if pool pays down faster

prepayment has a positive effect

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