CMA Mortgage-Backed Securities Overview 2

Question 1

Which federal agency guarantees timely payment of principal and interest on mortgage-backed securities?

Accepted Answer

Ginnie Mae

Answer

Fannie Mae

Answer

Freddie Mac

Answer

Sallie Mae

Question 2

What is the primary risk that MBS investors face when interest rates decline significantly?

Accepted Answer

Prepayment risk

Answer

Extension risk

Answer

Credit risk

Answer

Liquidity risk

Question 3

In a pass-through MBS, how are principal and interest payments distributed to investors?

Accepted Answer

Pro-rata based on ownership percentage

Answer

Equally among all tranches

Answer

Based on seniority hierarchy

Answer

Only after servicer fees are deducted last

Question 4

What term describes the difference between the coupon rate on an MBS and the underlying mortgage rates?

Accepted Answer

Servicing spread

Answer

Net interest margin

Answer

Guaranty fee spread

Answer

Gross WAC

Question 5

Which measure represents the weighted average of the remaining terms to maturity of mortgages in an MBS pool?

Accepted Answer

Weighted Average Maturity (WAM)

Answer

Weighted Average Coupon (WAC)

Answer

Weighted Average Loan Age (WALA)

Answer

Duration

Question 6

A CMO's planned amortization class (PAC) tranche provides investors with protection against which two risks?

Accepted Answer

Prepayment risk and extension risk

Answer

Credit risk and market risk

Answer

Liquidity risk and reinvestment risk

Answer

Interest rate risk and default risk

Question 7

Which entity is responsible for servicing loans in an MBS pool after securitization?

Accepted Answer

The mortgage servicer

Answer

The trustee

Answer

The original lender only

Answer

Fannie Mae directly