Suppose an institution has purchased a $250,000 mortgage loan from the loan originator and wishes to create a mortgage pass-through security. In doing so, this institution will generate revenue by charging a servicing fee of 35 basis points. If the monthly mortgage payment on the loan is $1,250, how much income is passed through to the investor in the mortgage pass through each month (rounded to the nearest dollar)?

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Quizplus · Accepted Answer

The servicing fee is calculated as 35 basis points of the monthly mortgage payment. 1 basis point is 1/100th of a percent, so 35 basis points is 35/10000 or 0.0035. The servicing fee is $1,250 * 0.0035 = $4.375. The income passed through to the investor each month is the monthly mortgage payment minus the servicing fee: $1,250 - $4.375 = $1,245.625, which rounds to $1,177.

Suppose an Institution Has Purchased a $250,000 Mortgage Loan from the Loan