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 above.

Question

Quizplus · Accepted Answer

MBBs differ from pass-throughs and CMOs because there is no direct link between the cash flow on the mortgages backing the bond and the interest and principal payments on the MBB. MBBs are structured with a separate pool of mortgage assets that generate cash flows and those cash flows are used to pay interest and principal on the bonds, but the timing and amounts may not match exactly with mortgage payments due to various factors such as prepayments, defaults, and fees.

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