Question: Explain the effect on the average lives of sequential pay structures
Explain the effect on the average lives of sequential-pay structures of including an accrual tranche in a CMO structure.
Answer to relevant QuestionsWhat types of investors would be attracted to an accrual bond? Why might an interest rate derivative such as an interest rate swap or interest rate cap be used in a securitization transaction for residential mortgage loans? Why does the treatment of modified loans in a nonagency RMBS deal impact the bond classes? a. What is meant by a senior-subordinated structure? b. Why is the senior-subordinated structure a form of credit enhancement? Answer the below questions. a. With respect to the mitigation of balloon risk, what is meant by an internal tail? b. With respect to the mitigation of balloon risk, what is meant by an external tail?
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