Practice Test Geeks(CMA) Certified Mortgage Advisor Practice Test
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Mortgage-Backed Securities Overview Flashcards

7 cards from real CMA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Mortgage-Backed Securities Overview flashcards as text

  1. Which MBS structure separates mortgage cash flows into interest-only (IO) and principal-only (PO) strips?

    Answer: Stripped MBS

    Stripped MBS divide pool cash flows so IO holders receive only interest payments and PO holders receive only principal payments.

  2. How does rising interest rates typically affect the price of a principal-only (PO) MBS strip?

    Answer: Price falls because slower prepayments delay principal recovery

    Rising rates slow prepayments, extending the time until PO investors receive their discounted principal, which reduces the present value of those cash flows.

  3. What is a 'whole loan CMO' as distinct from an agency CMO?

    Answer: A CMO backed by non-agency mortgage loans without GSE guarantee

    Whole loan CMOs are private-label structures backed by actual mortgage loans rather than agency MBS, exposing investors to credit risk.

  4. Which risk describes the possibility that slower-than-expected prepayments will extend the life of an MBS beyond its anticipated maturity?

    Answer: Extension risk

    Extension risk occurs when rising rates slow prepayments, causing investors to hold the MBS longer than expected at below-market rates.

  5. In a REMIC structure, which tranche typically receives the residual cash flows after all other tranches are paid?

    Answer: The residual interest class

    The REMIC residual class captures any excess spread or cash flows remaining after all regular interest holders have been paid.

  6. What is the significance of the 'pool factor' in agency MBS trading?

    Answer: It represents the remaining principal balance as a proportion of the original balance

    The pool factor (between 0 and 1) shows what fraction of the original principal remains outstanding, declining over time as principal is paid down.

  7. Which regulatory framework classifies MBS tranches for bank capital requirement purposes under U.S. rules?

    Answer: Basel III / U.S. capital rules, including the securitization framework

    Basel III capital rules, implemented in U.S. banking regulations, determine risk weights for MBS holdings based on tranche seniority and credit quality.