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FRM 2007 PI q34 - Analysing ABS

fullofquestions

New Member
QUESTION
When evaluating asset-backed securitization issues, which of following would be least
important during the investor’s analysis process?

a. The liability concentration levels of the asset originator.
b. The structure of the underlying securitization transaction.
c. The quality of the loan servicer for the underlying assets in the transaction.
d. The quality of the underlying assets within the securitization structure.

CORRECT: A

Virtually anything to do with the issuer is important, but in the order of priority, looking at
the issuer’s liability concentrations, assuming you could obtain that information, is not as
important as the other three alternatives. Although the liability concentration levels are a
very significant issue for the underlying originator to monitor and analyze, this is not a
significant consideration for investors to review.

Reference: Gunter Meissner, Credit Derivatives. Chapter 2.

INCORRECT: B
The structure of the underlying securitization transaction would be important in evaluating asset-
backed securitization issues.
INCORRECT: C
The quality of the loan servicer for the underlying assets in the transaction would be important in
evaluating asset-backed securitization issues.


Isn't the Servicer the entity that is collecting and remitting of loan payments. This seems to be way less important that the liability concentration of the asset Originator. Actually, the asset Originator will usually sell the mortgage to the Arranger so those guys usually aren't of much consequence once the assets have been securitized. So I kind of answered my own question although the Servicer seems to be even more removed. He/she just collects payments from the mortgage and pay the investors. Any thoughts on this?
 

harifrm1980

New Member
Once the assets are securitized the originator's default has no impact on them. ABS are affected by the borrowers's defaulting on their obligations. I hope this clarifies.
 
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