1. On April 1, 2020 CANNIE MAE (CMHC) issued a mortgage pass-through security with the prospectus supplement indicating the following:

                                                         CANNIE MAE

Face Value = 650 million, WAM = 290 months (seasoned for 10 months), WAC = 5.4%, servicing fee = 0.6%, prepayment speed = 175PSA

1. What is the pass-through coupon rate for this security and what does it mean to the investor?

2. What is the average note rate being paid by the borrowers in the loan pool for this security?
3. Why does the pass-through rate differ from the average note rate paid by the borrowers in the loan pool/collateral?

4. On April 1 2020, an institutional investor purchased $50 million principal of this security. On May 1, 2020 (end of month 1), determine the projected cash flow to the institutional investor.

5. Suppose the actual prepayments from the pool amount to $0.8 million due to rising interest rates, what is the cash flow to the Institutional Investor?

6. Suppose instead, the actual prepayments from the pool amount to $4.8 million due to falling interest rates, what is the cash flow to the Institutional Investor?

7. What type of investors will avoid investing in an agency pass-through securities and why?

Answer rating: 100% (QA)

The pass through coupon rate for this security is 5 4 This means that the investor will receive 5 4 of the face value of the security as interest paym... View the full answer