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P2.T6.611. Securitization performance indicators (Choudhry)

David Harper CFA FRM

David Harper CFA FRM
Staff member
Learning objectives: Explain the reasons for and the benefits of undertaking securitization. Describe and assess the various types of credit enhancements. Explain the various performance analysis tools for securitized structures and identify the asset classes to which they are most applicable


611.1. Roundcore Bank is going to securitize a portfolio of of long- and medium-term commercial real estate loans that it originated during its most recent fiscal year. Which of the following is the LEAST likely to be the bank's motivation?

a. Diversify its funding mix
b. Increase return on equity (ROE)
c. Increase average duration of balance sheet assets
d. Remove certain credit risks from the balance sheet

611.2. Among the following types of credit enhancement, which is the difference between the return on the underlying assets and the interest rate payable on the issued notes (liabilities)?

a. Excess spread
b. Step-up margin
c. Over-collateralization
d. Return on equity (ROE)

611.3. Consider the following three pairs of performance indicators:

I. Delinquency ratio and default ratio
II. Loss curves and absolute prepayment speed
III. Debt service coverage ratio and weighted average maturity (WAM)

Which sequence below correctly associates the collateral type with its primary performance indicators?

a. I. Auto loans, II. Commercial mortgages, III. Credit cards
b. I. Auto loans, II. Residential mortgages, III. Credit cards
c. I. Credit cards, II. Auto loans, III. Commercial mortgages
d. I. Commercial mortgages, II. Credit cards, III. Auto loans