Mortgage-backed bonds (MBB) differ from pass-throughs and CMOs in which of the following ways?
A)The MBB bondholders have a junior claim to assets of the FI.
B)There is no direct link between the cash flow on the mortgages backing the bond and the interest and principal payments on the MBB.
C)The assets backing a MBB issue are normally removed from the balance sheet of the FI.
D)Tranches of a MBB are treated equally with respect to prepayments on mortgages backing the bond issue.
E)None of the options.

Question

Quizplus · Accepted Answer

Pass-throughs and CMOs have a direct link between the cash flow on the mortgages backing the bond and the interest and principal payments on the bonds, whereas MBBs do not. MBB bondholders also typically have a senior claim to the assets of the issuing financial institution, and the assets backing a MBB issue are not normally removed from the FI's balance sheet. Tranches of a MBB may have different prepayment risks depending on their structure.

Mortgage-Backed Bonds (MBB) Differ from Pass-Throughs and CMOs in Which