What is the concern with the inclusion of fixed-rate mortgage loans in the collateral pool when the liabilities are floating rate?
Answer to relevant QuestionsAn interest rate cap allows the buyer of the cap to be compensated if interest rates rise above a reference rate. The buyer has to pay a periodic premium to obtain this protection. When an RMBS transaction has a pool of ...Answer the below questions. a. What is the difference between credit tranching and prepayment tranching? b. Why would there be both types of tranching in a nonagency deal but only one type of tranching in an agency deal? 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? Explain the underlying principle for a yield maintenance charge. An asset-backed security has been credit enhanced with a letter of credit from a bank with a single A credit rating. If this is the only form of credit enhancement, explain whether this issue can be assigned a triple A ...
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