Question 1

The following information is for a collateralized mortgage obligation (CMO).Tranche A has a face value of $110 million and pays 5 percent annually.Tranche B has a face value of $90 million and pays 7 percent annually.

What is the principal outstanding on Tranche A and Tranche B after the end of year payment in the previous question?

Accepted Answer

The answer of The following information is for a collateralized...

Question 2

Overseas bank is pooling 50 similar and fully amortized mortgages into a pass-through security.The face value of each mortgage is $100,000 paying 180 monthly interest and principal payments at a fixed rate of 9 percent per annum.

What is the monthly payment on the mortgage pass-through?

Accepted Answer

The answer of Overseas bank is pooling 50 similar and...

Question 3

Overseas bank is pooling 50 similar and fully amortized mortgages into a pass-through security.The face value of each mortgage is $100,000 paying 180 monthly interest and principal payments at a fixed rate of 9 percent per annum.

For the first monthly payment,what are the interest and principal portions of the payment?

Accepted Answer

First month interest: 5,000,000 * (0.09 ÷ 12) = 37,500
First months principal: PMT - interest = 50,713 - 37,500 = $13,213.

Question 4

One hundred identical mortgages are pooled together into a pass-through security.Each mortgage has a $150,000 principal,a fixed annual interest rate of 8 percent (paid monthly),and is fully amortized over a term of 30 years.

If the entire mortgage pool is repaid after the second month,what is the second month's (liquidating)principal and interest payments?

Accepted Answer

The second month's interest is calculated on the remaining principal after the first month's payment. The principal for each mortgage is $150,000, so for 100 mortgages, it's $15,000,000. The interest for the second month is approximately $99,933, and the remaining principal is $14,989,935.

Question 5

The following information is for a collateralized mortgage obligation (CMO).Tranche A has a face value of $110 million and pays 5 percent annually.Tranche B has a face value of $90 million and pays 7 percent annually.

What are the annual coupon payments promised to each tranche? (Assume no prepayments and non-amortization of principal. )

Accepted Answer

For Tranche A: 
Coupon payment = Face value * coupon rate = $110 million * 0.05 = $5.5 million

For Tranche B: 
Coupon payment = Face value * coupon rate = $90 million * 0.07 = $6.3 million

Therefore, the annual coupon payments promised to Tranche A and B are $5.5 million and $6.3 million, respectively.

Question 6

One hundred identical mortgages are pooled together into a pass-through security.Each mortgage has a $150,000 principal,a fixed annual interest rate of 8 percent (paid monthly),and is fully amortized over a term of 30 years.

What is the monthly payment on the mortgage pass-through if a 44 basis point servicing fee is deducted monthly?

Accepted Answer

The answer of One hundred identical mortgages are pooled together...

Question 7

The underlying GNMA 15-year mortgage pool has a principal amount of $50 million and an annual yield of 6 percent (paid monthly).Assume that there are no prepayments.

What is the first monthly payment on the Interest Only (IO)strip?

Accepted Answer

Payment on IO strip: Principal F1F1F1S1F1F1F10 (annual rate F1F1F1S1F1F1F10 12)= $50,000,000 F1F1F1S1F1F1F10 0.05 = $250,000.

Question 8

The underlying GNMA 15-year mortgage pool has a principal amount of $50 million and an annual yield of 6 percent (paid monthly).Assume that there are no prepayments.

What is the first monthly payment on the Principal Only (PO)strip?

Accepted Answer

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Remove interest paid to the IO strip: 421928 - 250,000 = $171,928.

Question 9

One hundred identical mortgages are pooled together into a pass-through security.Each mortgage has a $150,000 principal,a fixed annual interest rate of 8 percent (paid monthly),and is fully amortized over a term of 30 years.

What is the present value of the mortgage pass-through if the entire pool is repaid after two months and there is no change in interest rates?

Accepted Answer

The present value of the mortgage pass-through is the sum of the principal amounts of all mortgages, which is $150,000 * 100 = $15,000,000, since the entire pool is repaid after two months without any change in interest rates.

Question 10

Overseas bank is pooling 50 similar and fully amortized mortgages into a pass-through security.The face value of each mortgage is $100,000 paying 180 monthly interest and principal payments at a fixed rate of 9 percent per annum.

If the entire mortgage pool is repaid after the second month,what is the second month's interest and principal payments?

Accepted Answer

Month 1 principal: (5,000,000 - 13,213) = 4,986,787
Month 2 interest: 4,986,787 * (0.09 ÷ 12) = $37,401
Month 2 principal reduction: 50,713 - 37,401 = $13,312.

Question 11

One hundred identical mortgages are pooled together into a pass-through security.Each mortgage has a $150,000 principal,a fixed annual interest rate of 8 percent (paid monthly),and is fully amortized over a term of 30 years.

What is the present value of the mortgage pass-through if,immediately after origination,interest rates increase to 8.25 percent per annum?

Accepted Answer

The first step is to calculate the monthly mortgage payments. We can use the PMT function in Excel or a financial calculator. The monthly payment for each mortgage is $1,099.59.

Next, we calculate the total monthly payment for the pool of mortgages, which is 100 multiplied by the monthly payment of $1,099.59, or $109,958.80.

To calculate the present value, we need to discount the future cash flows (monthly payments) at the new interest rate of 8.25%, which is equivalent to a monthly rate of 0.006875%. We can use the PV function in Excel or a financial calculator to calculate the present value.

The present value of the monthly cash flows is $14,650,590.57, which is the answer (option B).

Question 12

Overseas bank is pooling 50 similar and fully amortized mortgages into a pass-through security.The face value of each mortgage is $100,000 paying 180 monthly interest and principal payments at a fixed rate of 9 percent per annum.

What is the market (present)value of the mortgage pass-through to the investor if the interest rates on this risk category of securities decrease to 7 percent? (Note that investors receive payments net of the 50 basis points servicing fees.)

Accepted Answer

The answer of Overseas bank is pooling 50 similar and...

Question 13

Overseas bank is pooling 50 similar and fully amortized mortgages into a pass-through security.The face value of each mortgage is $100,000 paying 180 monthly interest and principal payments at a fixed rate of 9 percent per annum.

What is the monthly payment received by investors of the mortgage pass-through if the FI deducts a 50 basis points servicing fee?

Accepted Answer

The monthly mortgage payment for each mortgage is calculated using the formula for a fixed-rate mortgage payment. The monthly interest rate is 9%/12 = 0.0075. The payment for each mortgage is $1,014.32. For 50 mortgages, the total payment is $50,716. After deducting the 50 basis points (0.5%) servicing fee, the payment to investors is $50,716 - $254.32 = $49,237.

Question 14

The following information is for a collateralized mortgage obligation (CMO).Tranche A has a face value of $50 million and pays 6 percent annually.Tranche B has a face value of $50 million and pays 8 percent annually.All mortgages have maturities of 30 years.

What are the annual payments promised to Tranche A and Tranche B,respectively,assuming no prepayments and non-amortization?

Accepted Answer

The annual payment for Tranche A is 6% of $50 million, which is $3,000,000. The annual payment for Tranche B is 8% of $50 million, which is $4,000,000.

Question 15

One hundred identical mortgages are pooled together into a pass-through security.Each mortgage has a $150,000 principal,a fixed annual interest rate of 8 percent (paid monthly),and is fully amortized over a term of 30 years.

For the first monthly payment,what portion is principal and what portion is interest?

Accepted Answer

Accrued interest first month: $15,000,000 * (0.08 ÷ 12) = $100,000.
Payment - Interest = Principal
110,065 - 100,000 = 10,065.

Question 16

The following information is for a collateralized mortgage obligation (CMO).Tranche A has a face value of $110 million and pays 5 percent annually.Tranche B has a face value of $90 million and pays 7 percent annually.

If at the end of the first year,the CMO trustee receives total cash flows of $15 million,how are they distributed?

Accepted Answer

The answer of The following information is for a collateralized...

Question 17

The following information is for a collateralized mortgage obligation (CMO).Tranche A has a face value of $50 million and pays 6 percent annually.Tranche B has a face value of $50 million and pays 8 percent annually.All mortgages have maturities of 30 years. What are the principals outstanding on Tranches A and B,respectively,after the CMO distributes the $10 million of cash flows?

Accepted Answer

Tranche A receives interest of $3 million (6% of $50 million), leaving $7 million to reduce its principal to $47 million. Tranche B receives only interest of $4 million (8% of $50 million), so its principal remains $50 million.

Question 18

Overseas bank is pooling 50 similar and fully amortized mortgages into a pass-through security.The face value of each mortgage is $100,000 paying 180 monthly interest and principal payments at a fixed rate of 9 percent per annum.

If the entire mortgage pool is repaid at the end of the second month,what is the weighted average life of the mortgage pool?

Accepted Answer

The total cash flow from the mortgage pool is calculated as follows:

Total cash flow = $100,000 x 50 x 2 = $10,000,000

Since the entire mortgage pool is repaid at the end of the second month, the weighted average life of the mortgages can be calculated using the formula:

Weighted average life = (Σ(Pn x tn))/Σ(Pn)

where Pn is the outstanding principal balance at the end of month n, and tn is the time elapsed since the beginning of the pool.

At the end of the second month, the outstanding principal balance for each mortgage is:

PV = $100,000 / (1 + 0.09/12)^180 = $31,505.53

Therefore, the total outstanding principal balance for the pool is:

Total outstanding principal = $31,505.53 x 50 = $1,575,276.50

The weighted average life of the mortgage pool is then:

Weighted average life = [(1 x $1,575,276.50) + (2 x $8,424,723.50)] / $10,000,000 = 1.997 months

Therefore, the best answer is C, 1.997 months.

Question 19

One hundred identical mortgages are pooled together into a pass-through security.Each mortgage has a $150,000 principal,a fixed annual interest rate of 8 percent (paid monthly),and is fully amortized over a term of 30 years.

What is the weighted average life of the above mortgage pool?

Accepted Answer

The weighted average life of a mortgage pool is calculated by taking the sum of the products of the outstanding principal balance of each mortgage and its remaining term to maturity and dividing by the total outstanding principal balance of the pool. In this case, all the mortgages have the same principal and term, so the calculation simplifies to the average remaining term to maturity. The formula for calculating the remaining term for a fully amortizing mortgage is:

Remaining Term = -log(1-(interest rate/12)*outstanding principal)/(12*log(1+interest rate/12))

Plugging in the values for a $150,000 mortgage at 8% annual interest paid monthly, the remaining term is approximately 358 months. Therefore, the weighted average life of the pool is 358/12, or 29.83 months, which rounds to 1.998 months (Option C).

Question 20

The following information is for a collateralized mortgage obligation (CMO).Tranche A has a face value of $50 million and pays 6 percent annually.Tranche B has a face value of $50 million and pays 8 percent annually.All mortgages have maturities of 30 years.

If at the end of the first year,the trustee of the CMO receives total cash flows of $10 million,how are they distributed to Tranche A and B,respectively?

Accepted Answer

The answer of The following information is for a collateralized...

Quiz 26: Securitization

Overseas bank is pooling 50 similar and fully amortized mortgages into a pass-through security.The face value of each mortgage is $100,000 paying 180 monthly interest and principal payments at a fixed rate of 9 percent per annum. What is the monthly payment on the mortgage pass-through?

The underlying GNMA 15-year mortgage pool has a principal amount of $50 million and an annual yield of 6 percent (paid monthly) .Assume that there are no prepayments. What is the first monthly payment on the Interest Only (IO) strip?

The underlying GNMA 15-year mortgage pool has a principal amount of $50 million and an annual yield of 6 percent (paid monthly) .Assume that there are no prepayments. What is the first monthly payment on the Principal Only (PO) strip?

One hundred identical mortgages are pooled together into a pass-through security.Each mortgage has a $150,000 principal,a fixed annual interest rate of 8 percent (paid monthly) ,and is fully amortized over a term of 30 years. What is the weighted average life of the above mortgage pool?