securitazation

Question 1

hard bullet covered bond

Answer 1

payment must be on a specific date
issuer must sell loans to fulfill payment when default

Question 2

soft bullet bond

Answer 2

payment can be changed when loan default

Question 3

overcollaterazation

Answer 3

100 m loan value is 95 mln bond and 5 mln of equity of SPE.

Question 4

excess spread

Answer 4

interest is higher than coupon (SPE)

Question 5

subordination

Answer 5

bonds are in tranches. waterfall bonds. pricnipal is payed in the line of seniority

Question 6

CDO

Answer 6

collaterized debt obligations

asset backed security which is backed by a pool of other asset backed security. the payment for investors can be made by p+i or selling bonds on premium

Question 7

CLO

Answer 7

collaterized loan obligations - a part of CDO backed by loans or loand cdo

Question 8

Cash flow CLO

Answer 8

most common - cash flows for investors from hold and wait stategy

Question 9

market value CLO

Answer 9

returns are made by buying and selling stock

Question 10

MBS prepayement risk

Answer 10

mortgage cfs are uncertain
1. contraction risk - interest rates drop people pay the whole mortgage from refinancing for a lower yield (like callable bonds)

2. extension risk - rates go up, less prepayement higher maturity of mbs and higher duartion

Question 11

LTV - loan to value

Answer 11

borrowed funds/property value
the lower the less credit risk

decreases over time

Question 12

DTI -debt to income

Answer 12

the whole debt/monthly gross pre tax income

the lower the better

Question 13

prime mortgages

Answer 13

high credit quality, low dti low ltv, first lien mortgage

Question 14

subprime mortgages

Answer 14

lower credit quality, high dti or ltv, may be second lien

Question 15

recourse

Answer 15

lender can make a claim for borrower in default when hoke value is not enough to fulfuill credit

Question 16

non- recuorse

Answer 16

lender has a claim against the proerty only