Mortgage Backed Securities Final Exam 2023 with complete solution

Mortgage Backed Securities Final Exam 2023 with complete solution Why is prepayment less of an issue with commercial loans than it is with home mortgage loans? Explain Yield Maintenance & Defeasance prepayment restrictions. 1) Commercial loans have strong call protections and penalties to the borrow if they prepay the loan. Home loans do not have prepayment penalties. Yield Maintenance Penalty - Present Value of lost payments will be paid to the lender to maintain their expected yield Defeasance - lost payments from prepayment are replaced with US Treasuries Tranche A pool of mortgages are broken up into different rating classifications. Slice or portion Master Servicer 1) Services all the loans in the pool 2) Manages the flow of information in the mortgage pool 3) Can modify terms of the loan according to the PSA Handles the day to day activities and oversees primary servicers Special Servicer 1) Steps in if the loan defaults 2) Responsible for handling the B Piece Operating Advisor 1) Advocate for the investment grade bondholder 2) Monitors and evaluates the special servicer performance under the PSA Pooling and Servicing Agreement (PSA) A legal contract defining the responsibilities and the obligations of the master and special servicers in managing a CMBS transaction REMIC Real estate mortgage investment conduit (REMIC) - special purpose vehicle (SPV) - an entity used to pool Mortgage loans and MBS Defeasance 1) A method for reducing the fees required when a borrower decides to prepay a fixed-rate commercial real estate loan 2) Lost lender cash flows are replicated by US Treasuries Yield Maintenance -A type of prepayment penalty - The borrower must pay the remaining balance plus a lump sum that represents the lost interest to the lender Lock Out Period A loan cannot be prepaid for a fixed amoun