Question

66. Which of the following statements is (are) true with respect to the characteristics of the various types of asset-backed securities (ABS) that are available?

I. The prepayment rate on manufactured housing-backed securities tends to be significantly less than that on mortgage-backed securities.

II. The level of interest rates is the primary factor in determining the prepayment rate on automobile loan-backed securities.

III. Absolute prepayment rate is applied to the original loan balance of the pool, as opposed to its current balance.

IV. During the lockout period, all interest payments received from the credit card receivables pool are reloaned to other credit card users (as opposed to being paid out to the ABS investors).

A. I and III

B. II and IV

C. III and IV

67. Suppose that for the first five years of a CMO, prepayments are well below the initial upper PAC collar and within the initial lower PAC collar. The effective upper collar will ______ and the initial upper collar will______.

A. increase; increase

B. decrease; decrease

C. increase; not change

Answer 1

66. Option ( C ). In case of asset backed securities, the interest payments received from credit card users are pooled and reloaned or handed over to special purpose vehicles. Absolute prepayment rate is applied on original balance of loan of the pool.

67. Option (C). In case prepayments are below initial upper PAC collar and within initial lower PAC collar, the effective upper collar will increase and initial upper collar will not change.