Question 1

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

To calculate the first monthly payment on the IO strip, we need to calculate the interest payment on the underlying mortgage pool. The annual interest payment on the pool is:
$50,000,000 x 6% = $3,000,000
Dividing this by 12 (for the 12 months in a year) gives us the monthly interest payment:
$3,000,000 ÷ 12 = $250,000
Therefore, the first monthly payment on the IO strip would also be $250,000. Choice C is the correct answer.

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

Accepted Answer

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

Question 4

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

Tranche A pays 5% on a face value of $110 million, so the annual coupon payment is 0.05 x $110 million = $5.5 million.
Tranche B pays 7% on a face value of $90 million, so the annual coupon payment is 0.07 x $90 million = $6.3 million.

Question 5

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

Each mortgage has a face value of $100,000, a fixed rate of 9% per annum, and is fully amortized over 180 monthly payments. Therefore, the monthly payment for each mortgage can be calculated using the following formula:

Payment = PV x i / (1 - (1 + i)^(-n))

Where PV = $100,000 (the present value of the mortgage), i = 0.0075 (the monthly interest rate, which is 9%/12), and n = 180 (the number of monthly payments). Plugging in these values, we get:

Payment = $100,000 x 0.0075 / (1 - (1 + 0.0075)^(-180)) = $805.23

Since the security consists of 50 such mortgages, the total monthly payment for the security is:

Payment = $805.23 x 50 = $40,261.50

In the first monthly payment, the interest portion of the payment can be calculated by multiplying the remaining principal balance by the monthly interest rate. Since each mortgage is fully amortized, the remaining principal balance after one month is:

Remaining principal = PV x (1 + i)^(n-1) - Payment / i

Where PV = $100,000, i = 0.0075, and n = 180. Plugging in these values, we get:

Remaining principal = $73,124.01

Therefore, the interest portion of the first monthly payment is:

Interest = $73,124.01 x 0.0075 = $548.43

And the principal portion of the first monthly payment is:

Principal = $805.23 - $548.43 = $256.80

So the best choice is (B): $37,500 interest and $13,213 principal.

Question 6

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 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 Principal Only (PO) strip?

Accepted Answer

The answer of The underlying GNMA 15-year mortgage pool has...

Question 8

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

Question 9

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 weighted average life (WAL) is calculated by considering the time at which each dollar of principal is repaid. Since the entire mortgage pool is repaid at the end of the second month, the WAL is slightly less than 2 months due to the amortization of principal in the first two months.

Question 10

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 the cash flow first, reducing its principal by $3 million to $47 million. Tranche B remains at $50 million until Tranche A is fully paid.

Question 11

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

The interest for the second month is calculated on the remaining balance after the first month's payment. The principal for the second month is the remaining balance after the second month's interest is paid.

Question 12

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

Question 13

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...

Question 14

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

At the end of the year, Tranche A will have paid out $5.5 million in interest ($110 million x 5%) and Tranche B will have paid out $6.3 million in interest ($90 million x 7%). This means that the principal outstanding on Tranche A will be $110 million - $5.5 million = $104.5 million, and the principal outstanding on Tranche B will be $90 million - $6.3 million = $83.7 million.

Therefore, the correct answer is C, which is $106.8 million on Tranche A and $90 million on Tranche B.

Quiz 26: Securitization

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?

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 Principal Only (PO) strip?