Mortgage Backed Securities Final UPDATED Exam Questions and CORRECT Answers
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Course
Mortgage Backed Securities
Institution
Mortgage Backed Securities
Mortgage Backed Securities Final
UPDATED Exam Questions and
CORRECT Answers
Why is prepayment less of an issue with commercial loans than it is with home mortgage
loans?
Explain Yield Maintenance & Defeasance prepayment restrictions. - Correct Answer- 1)
Commercial loans have strong call ...
Mortgage Backed Securities Final
UPDATED Exam Questions and
CORRECT Answers
Why is prepayment less of an issue with commercial loans than it is with home mortgage
loans?
Explain Yield Maintenance & Defeasance prepayment restrictions. - Correct Answer- 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 - Correct Answer- A pool of mortgages are broken up into different rating
classifications. Slice or portion
Master Servicer - Correct Answer- 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 - Correct Answer- 1) Steps in if the loan defaults
2) Responsible for handling the B Piece
Operating Advisor - Correct Answer- 1) Advocate for the investment grade bondholder
2) Monitors and evaluates the special servicer performance under the PSA
, Pooling and Servicing Agreement (PSA) - Correct Answer- A legal contract defining the
responsibilities and the obligations of the master and special servicers in managing a CMBS
transaction
REMIC - Correct Answer- Real estate mortgage investment conduit (REMIC)
- special purpose vehicle (SPV)
- an entity used to pool Mortgage loans and MBS
Defeasance - Correct Answer- 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 - Correct Answer- -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 - Correct Answer- A loan cannot be prepaid for a fixed amount of time
Pari Passu - Correct Answer- - Meaning "Equal footing"
- All the bond holders have equal rights to the payment or equal seniority
Notional Balance - Correct Answer- The remaining principal balance on a loan after the
interest payments have been stripped
"Hair Cut" - Correct Answer- - Bond issuers project future cash flows
- But rating agencies always "haircut" (reduce) the estimated cash flows a bit to be more
conservative when valuing bonds
Mezzanine tranches (Ratings) - Correct Answer- AA through BBB- are Mezzanine Tranches
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