AIMs: Describe the evolution of the MBS market. Explain the creation of agency (fixed rate and adjustable rate) and private-label MBS pools, pass-throughs, CMOs, and mortgage strips. Understand how a loan progresses from application to agency pooling. Discuss MBS market structure and the ways that fixed rate pass-through securities trade.
Questions:
110.1 An agency fixed-rate mortgage-backed security (MBS) is a pass-through pool that pays a 5.00% coupon to investors. One of the loans in the pool, among many others, carries a note rate of 5.75%; i.e., the note rate is 75 basis points higher than the coupon. Base (required) servicing is 25 basis points and the Guarantee Fee is 20 basis points. What is the amount of excess servicing on the loan?
a. Zero bps
b. 30 basis points
c. 75 basis points
d. 125 basis points
110.2. With respect to the timeline of a mortgage loan and the structure of the MBS market, each of the following is true EXCEPT:
a. At application, the loan may carry a floating rate or, at a slightly higher cost, a designated ("locked" or "committed") rate
b. The pipeline includes the lag, generally 30 to 60 days, between application and funding
c. During the committed pipeline, after the rate has been locked, the lender incurs both price (i.e., interest rate) risk and fallout risk
d. Borrows who lock-in a designated rate tend to fall out, in greater numbers, if interest rates increase during the committed pipeline
110.3. In the private-label securitization market, which of the following most nearly substitutes for the guarantee fee (g-fee) in the agency market?
a. Subordination, shifting interest and overcollateralization (O/C)
b. Mortgage servicing rights (MSR)
c. Base plus excess servicing rates
d. Private-label market also has g-fees
Answers:
Questions:
110.1 An agency fixed-rate mortgage-backed security (MBS) is a pass-through pool that pays a 5.00% coupon to investors. One of the loans in the pool, among many others, carries a note rate of 5.75%; i.e., the note rate is 75 basis points higher than the coupon. Base (required) servicing is 25 basis points and the Guarantee Fee is 20 basis points. What is the amount of excess servicing on the loan?
a. Zero bps
b. 30 basis points
c. 75 basis points
d. 125 basis points
110.2. With respect to the timeline of a mortgage loan and the structure of the MBS market, each of the following is true EXCEPT:
a. At application, the loan may carry a floating rate or, at a slightly higher cost, a designated ("locked" or "committed") rate
b. The pipeline includes the lag, generally 30 to 60 days, between application and funding
c. During the committed pipeline, after the rate has been locked, the lender incurs both price (i.e., interest rate) risk and fallout risk
d. Borrows who lock-in a designated rate tend to fall out, in greater numbers, if interest rates increase during the committed pipeline
110.3. In the private-label securitization market, which of the following most nearly substitutes for the guarantee fee (g-fee) in the agency market?
a. Subordination, shifting interest and overcollateralization (O/C)
b. Mortgage servicing rights (MSR)
c. Base plus excess servicing rates
d. Private-label market also has g-fees
Answers:
