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Securitized Products Part 1

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Questions and Answers

What is a key advantage of securitization for an asset seller?

Increasing profit margins

Diversifying investment portfolio

Reducing cash flow

Laying off risk (correct)

Which type of investor may seek to match their long-term liabilities with securities having similar cash flows?

Private equity firms

Life insurance and pension funds (correct)

Central Banks

Hedge funds

What may affect the credit quality of an individual mortgage loan?

Repayment structure

Government guarantee

Collateral value

All of the above (correct)

Which type of investor may seek to earn a spread over funding costs?

Banks Signup and view all the answers

What is the primary purpose of private mortgage insurance?

To reduce the credit risk of the borrower Signup and view all the answers

What is a key characteristic of Mortgage-Backed Securities (MBS)?

They are backed by mortgage loans Signup and view all the answers

What is the primary role of the guarantor in the securitization process?

To provide credit enhancement Signup and view all the answers

What is the primary objective of securitization?

To package income-producing assets into a tradable form and sell them to investors Signup and view all the answers

What is a key risk associated with securitized products?

All of the above Signup and view all the answers

What is the primary purpose of securitization?

To convert illiquid assets into liquid securities Signup and view all the answers

What is the role of an Asset Servicer in the securitization process?

To identify, pool, monitor, and administer the underlying assets Signup and view all the answers

What is unique about Whole Business Securitization (WBS)?

All revenue-generating assets are being sold Signup and view all the answers

How do prepayments affect the valuation of securitized products?

Prepayments decrease the value of securitized products Signup and view all the answers

What is the approximate value of the US Mortgage-Backed Securities (MBS) market?

$12 trillion Signup and view all the answers

What is the primary benefit of government-sponsored enterprises (GSEs) in the mortgage market?

They offer a government guarantee to investors, reducing credit risk Signup and view all the answers

What is the primary factor that determines the credit quality of a securitized product?

The creditworthiness of the borrower Signup and view all the answers

What is the repayment structure of a securitized product?

Amortizing with an assumption of prepayments Signup and view all the answers