Asset-Backed

Question 1

Contraction and Extension Risk

1.Sequential pay CMO - Collateral Mortgage Obligations

2.PAC tranches - Planned Amortization Class

3.Support Tranches -

4.MBS - Mortgage-Pass Through Securities / Agency securities

5. CMBS (Levels of protection)

Answer 1

1. Early Tranches - Contraction Risk

Later Tranches - Extension Risk

2. limit both for a range of prepayments rates
3. High interest rate. High of both risks
4. Do not reallocate contraction and extension risk among bondholders
5. I - Loan level (Yield, PrePayment lockout)
   II - Securitie level. (Residual Tranche - High level of losses)

Question 2

Definitions of:

CPR - Conditional prepayment
SMR - Single Montlhy Moratality Rate
PSA Prepayments benchmark. What does it meas: “50 PSA”

Answer 2

1. Annualized measure of prepayments of a mortgage pool payments
2. Percentage by which prepayments have reduced the principal-Balance
3. Montlhy series of CPRs that which pool mortgage should be compared. 50 PSA Means- the prepayment speed is assumed to be 50% of the PSA

Question 3

What is Prepayment risk
Extension Risk
Contraction risk

Answer 3

1. Payments of amortazition in of excess (Repay loans)
2. Prepayments slow than expected
3. Faster than expected

Question 4

Loan to value

Debt-service coverage ratio

Answer 4

Loan current value

Debt service

Question 5

Pools of loans are always composed by non or recourse?

Answer 5

non-recourses

Question 6

Definition of :

1.Renegotiable (rollover) mortgage

2.Hybrid mortgage

3.Convertible

Answer 6

1.initial fixed-rate period. Rate changes to another fixed rate

2.Intital fixed. Rate changes for floating

3. MAY change, Vari to fixed, if the borrower wants

Question 7

Benefit of Securitization

Answer 7

Improves legal claims.

Issuer —–> SPE

Question 8

ABS and CDO

What is the difference between Asset-Back Securities and Collateral Debt Obligation?

Answer 8

CDO - Employs a collateral Manager

Question 9

CashFlows

The amount the investor receives is equal to the CF?

Answer 9

No. Less.
The amount is used to pay fees.

Question 10

CLO, Structured finance CDO and SYNTHETIC CDO collaterals

Answer 10

CLO - Levarage from banks

Strutuctured finance CDO - Asset-back securities, mortgage-backed

Synthetic - CDSs (Credit. Default Swaps)

Question 11

What type of Mortgage securie offers a call protection? ( Restriction on prepayments)

Answer 11

Commercial Mortgage

Question 12

OAS, Z-spread,

Answer 12

OAS represents the bond’s spread to the spot yield curve excluding the option.

Implied cost of Option = Bonds Z vol - OAS