MCQ Quiz

Question 1 of 21

Residential mortgage prepayment penalties are most common in:

Europe
the United States
neither market because they are prohibited

Question 2 of 21

The weighted average coupon of a mortgage pool is based on mortgage rates weighted by each loan's:

current outstanding balance
property tax bill
servicing fee only

Question 3 of 21

If prepayment stays within the specified range for a PAC structure, the tranche that absorbs the prepayment risk is most likely the:

PAC tranche
Z-tranche
support tranche

Question 4 of 21

When interest rates decline for fixed-rate mortgages, actual prepayments are most likely to become:

lower than forecasted
higher than forecasted
unchanged by definition

Question 5 of 21

Which of the following is most likely a prime-loan characteristic?

high debt-to-income ratio and a second lien
higher LTV and weaker credit history
low debt-to-income ratio with substantial equity

Question 6 of 21

An interest-only security pays investors only the:

scheduled principal
interest cash flows
residual cash flow after all tranches

Question 7 of 21

In a sequential-pay CMO, principal payments most likely go first to:

all tranches in proportion to face value
the earliest tranche until it is retired
the residual tranche before all others

Question 8 of 21

Balloon risk is most accurately described as a form of:

contraction risk
credit enhancement
extension risk

Question 9 of 21

A Z-tranche is also known as an:

accrual bond
inverse floater
agency guarantee

Question 10 of 21

In an MBS, prepayment risk most accurately means the borrower repays principal:

at a pace different from the scheduled payment plan
only after the legal maturity date
only if the mortgage is commercial

Question 11 of 21

A debt service coverage ratio above 1.0x most likely indicates the property's cash flows are:

insufficient to cover debt service
exactly equal to debt service by definition
sufficient to cover debt service while maintaining the property

Question 12 of 21

For a lender, a higher loan-to-value ratio most likely means:

less protection in the event of borrower default
more borrower equity and lower default risk by definition
the mortgage automatically becomes agency RMBS

Question 13 of 21

At the structural level, CMBS call protection is most likely provided by:

defeasance
sequential-pay tranches
servicing fees

Question 14 of 21

An RMBS issued by a private entity without federal-agency or GSE guarantee is most accurately called:

agency RMBS
non-agency RMBS
CMBS

Question 15 of 21

Creating bond classes with different expected maturities is called:

time tranching
credit enhancement
defeasance

Question 16 of 21

If a recourse mortgage is in default and the property sale proceeds are insufficient, the lender can most likely claim:

only future prepayment penalties
only the servicer's fee
both the property and the borrower's other assets for the shortfall

Question 17 of 21

Under defeasance, a borrower that prepays most likely must purchase:

a new equity stake in the property
a portfolio of government securities that replicates the remaining scheduled cash flows
a support tranche from the same CMBS

Question 18 of 21

The coupon rate received by investors on a mortgage pass-through security is most likely:

higher than the pool's weighted average mortgage rate
equal to the pool's weighted average mortgage rate in all cases
lower than the pool's weighted average mortgage rate

Question 19 of 21

Extension risk occurs when the borrower repays principal:

faster than scheduled
exactly on the legal maturity date
more slowly than planned

Question 20 of 21

CMBS can have meaningful concentration risk most likely because a pool may contain:

only a few underlying commercial mortgages
only government-guaranteed mortgages
only mortgages with no property backing

Question 21 of 21

A mortgage is underwater when the property's value is:

equal to the mortgage balance
less than the amount owed on the mortgage
greater than the amount owed on the mortgage

Mortgage Backed Securities (Katas)

First Principles Thinking: core idea

First Principles Thinking: core idea

First Principles Thinking: core idea

First Principles Thinking: core idea

First Principles Thinking: core idea

First Principles Thinking: core idea

First Principles Thinking: core idea

First Principles Thinking: core idea

First Principles Thinking: core idea

First Principles Thinking: core idea

First Principles Thinking: core idea

First Principles Thinking: core idea

First Principles Thinking: core idea

First Principles Thinking: core idea

First Principles Thinking: core idea

First Principles Thinking: core idea

First Principles Thinking: core idea

First Principles Thinking: core idea

First Principles Thinking: core idea

First Principles Thinking: core idea

First Principles Thinking: core idea