Questions and Answers
Which of the following statements about securities is true?
Which of the following qualifies as an investment contract?
What is the primary benefit of investing in Mortgage Backed Securities instead of directly in a mortgage?
What does CMO stand for in the lending industry?
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What do IO and PO strips refer to?
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Which of the following is a characteristic of REITs?
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What does the multi-lender rule require?
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Which of the following exemptions exist under California Securities Law?
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A private offering of evidence of indebtedness would typically require:
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Which characteristic is true regarding a holder of securities?
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Study Notes
Securities in the Lending Industry
- Holders of securities have no rights to management, but are entitled to information and accounting.
- Limited partnerships can qualify as securities under certain conditions.
- Investment contracts involve schemes where investors expect profits through the efforts of others, not just promissory notes or mortgage pools.
- Investing in Mortgage Backed Securities (MBS) provides better insulation against borrower default compared to direct mortgage investments.
CMO (Collateralized Mortgage Obligation)
- CMOs are structured as a series of bonds created from a pool of mortgages.
IO and PO Strips
- IO (Interest Only) and PO (Principal Only) strips are payment categories derived from mortgage pools, not borrower payment methods or tax categories.
REITs (Real Estate Investment Trusts)
- REITs must distribute 95% of their taxable income to shareholders to avoid double taxation.
- REITs operate as securities, allowing them to tap into public investment markets.
Multi-Lender Rule
- The multi-lender rule necessitates that loans have service contracts and identical interests among purchasers, limiting investor numbers to maintain compliance.
California Securities Law Exemptions
- Exemptions include mortgage pools purchased by banks or savings institutions and private offerings, which do not fall under standard securities registration.
Private Offerings
- Evidence of indebtedness in private offerings is limited to 25 solicited persons, ideally with pre-existing relationships.
- Non-debt securities in private offerings are restricted to 35 or fewer investors who can protect their interests, without advertising the investment opportunity.
Securities in the Lending Industry
- Holders of securities have no rights to management, but are entitled to information and accounting.
- Limited partnerships can qualify as securities under certain conditions.
- Investment contracts involve schemes where investors expect profits through the efforts of others, not just promissory notes or mortgage pools.
- Investing in Mortgage Backed Securities (MBS) provides better insulation against borrower default compared to direct mortgage investments.
CMO (Collateralized Mortgage Obligation)
- CMOs are structured as a series of bonds created from a pool of mortgages.
IO and PO Strips
- IO (Interest Only) and PO (Principal Only) strips are payment categories derived from mortgage pools, not borrower payment methods or tax categories.
REITs (Real Estate Investment Trusts)
- REITs must distribute 95% of their taxable income to shareholders to avoid double taxation.
- REITs operate as securities, allowing them to tap into public investment markets.
Multi-Lender Rule
- The multi-lender rule necessitates that loans have service contracts and identical interests among purchasers, limiting investor numbers to maintain compliance.
California Securities Law Exemptions
- Exemptions include mortgage pools purchased by banks or savings institutions and private offerings, which do not fall under standard securities registration.
Private Offerings
- Evidence of indebtedness in private offerings is limited to 25 solicited persons, ideally with pre-existing relationships.
- Non-debt securities in private offerings are restricted to 35 or fewer investors who can protect their interests, without advertising the investment opportunity.
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Description
This quiz covers key concepts in the lending industry related to securities, investment contracts, and mortgage-backed securities. It also discusses collateralized mortgage obligations and the implications of real estate investment trusts. Test your understanding of these financial instruments and their impact on investors.
