There are some mortgage loans that are balloon loans. This means that when the loan matures, there is a mortgage balance that will require financing. It is the responsibility of the borrower to obtain the refinancing. What is the added risk associated with a pool of loans backed by balloon loans?
Answer to relevant QuestionsSuppose that the loans in the collateral pool for a nonagency RMBS deal have a floating rate. What is the risk associated with issued fixed-rate bond classes? Answer the below questions. a. At one time, prime and subprime RMBS were traded in separate markets. Why? b. Why after 2007 are prime and subprime RMBS treated as one asset type? In a commercial mortgage-backed security, what is the concern that the bondholders have when there is a prepayment premium paid by a borrower? Why is it not adequate to look at the weighted-average debt-to-service coverage ratio and weighted-average loan-to-value ratio for the pool of commercial mortgage loans in assessing the potential performance of a CMBS ...What are the major differences in structuring CMBS and RMBS transactions?
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