When an FI sells a loan without recourse, what happens to the credit risk of the loan? It is shared between the FI and the buyer. It is transferred to a third party. It is completely eliminated from the FI's balance sheet. It remains partially with the FI.

It is completely eliminated from the FI's balance sheet.

Highly leveraged transaction (HLT) loans are typically characterized by which of the following? They are unsecured, long-term, and have variable rates. They are secured, long-term, and have floating rates. They are unsecured, short-term, and have fixed rates. They are secured, short-term, and have fixed rates.

They are unsecured, short-term, and have fixed rates.

Which of the following is NOT true of loan assignments? The loan buyer holds a direct claim on the borrower Transfer of U.S. domestic loans is normally associated with a Uniform Commercial Code filing Contract terms are unrestrictive from the seller's perspective All rights are transferred on sale

Contract terms are unrestrictive from the seller's perspective

In the concept of good bank/bad bank, what is the role of the bad bank? It is a special purpose vehicle (SPV) organized to liquidate non-performing loans. Assets are funded by FDIC insured deposits. Assets are passed to the institution's correspondent bank. Assets are organized into a closed-end mutual fund.

It is a special purpose vehicle (SPV) organized to liquidate non-performing loans.

Financial Institution Loan Management: Sales, Risk, and Securitization Strategies

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Finance - Personal Finance

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Cards in this deck(38)

Loan sales by a financial institution (FI) are another tool to manage the _____ of the FI.

The growth of the commercial paper market and banks' ability to underwrite commercial paper has reduced the importance of which segment of the loan sales market?

When an FI sells a loan without recourse, what happens to the credit risk of the loan?

Highly leveraged transaction (HLT) loans are typically characterized by which of the following?

Besides reducing credit risks, an FI has an incentive to sell loans it originates for all of the following reasons EXCEPT to _____

Which of the following is NOT true of loan assignments?

In the concept of good bank/bad bank, what is the role of the bad bank?

An FI that sells a loan with recourse retains _____ of the loan.

In the sale of a loan to an investor/buyer, which type of contract has fewer agency costs?

The loan sales market where an FI originates and sells a short-term loan of a corporation is a close substitute to what?

When selling highly leveraged transactions loans (HLTs), what distinction is usually made?

Which of the following is NOT a contractual mechanism used by FIs to control credit risks?

HLT loans typically have all of the following characteristics except which of the following?

Loan participations are generally considered to be _____ than loan assignments.

Securitization of assets _____ the FI's capital requirements.

When a Special Purpose Vehicle (SPV) creates asset-backed securities, who retains ownership of the original assets?

Investors in a Structured Investment Vehicle (SIV) have _____ to the cash flows on the underlying portfolio of the SIV.

The availability of a liquid secondary market for asset-backed securities provided an incentive for FIs to follow which strategy of loan origination?

One difference between a special purpose vehicle (SPV) and a structured investment vehicle (SIV) is that _____

All else equal, advantages of a DI operating as an asset broker in regard to mortgages includes all of the following EXCEPT _____

A commercial bank operating under an originate-to-distribute model is acting most like _____

Which of the following are functions of GNMA?

The life of a Structured Investment Vehicle (SIV) is not tied to any particular _____ that it is responsible for securitizing.

GNMA helps create pass-through asset-backed securities by providing _____ insurance.

FNMA does not hold the mortgages it purchases on its balance sheet, thereby transferring _____ to investors purchasing its securities.

Which of the following is a primitive form of asset securitization?

Which of the following government agencies or government-sponsored enterprises are NOT directly involved in the creation of mortgage-backed pass-through securities?

For what reason do we say that SIV (Structured Investment Vehicle) acts similarly to a traditional bank?

By securitizing the long-term assets (such as residential mortgage loans), financial institutions are able to reduce their costs because of all the following reasons EXCEPT _____

Which of the following is NOT true of a loan that is sold without recourse?

A buyer of a loan participation is exposed to _____

Why do spreads on HLT loans behave more like investment-grade bonds than like high-yield bonds?

Which of the following is not accomplished by securitization of assets?

Which of the following statements is true regarding Special Purpose Vehicles (SPVs) and structured investment vehicles (SIVs)?

When FIs form off-balance sheet subsidiaries to remove assets from their balance sheet, the subsidiary activities _____

The life span of an SPV (Special Purpose Vehicle) is limited to _____

The Government National Mortgage Association provides _____ to investors in mortgage-backed securities.

Which of the following is an incentive to securitize mortgage assets?

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