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20 Cards in this Set

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What is a special purpose vehicle or a special purpose corporation?
an entity that separates the assets used as collateral from the corporation that is seeking financing; allows corporation to create asset-backed securities with better credit ratings
What are amortizing assets?
loans in which the borrower's periodic payment consists of scheduled principal and interest payments over the life of the loan; mortgage loans, auto loans, home equity loans
What are nonamortizing assets?
borrower must make a minimum periodic payment; no schedule of principal payments; no concept of prepayment; credit card receivables
What is credit enhancement?
support is provided for one or more of the bondholders in the structure
What are external credit enhancements?
come from 3rd party guarantees that provide protection against a loss; examples: corporate guarantee, a letter of credit from a bank, bond insurance
What are the 3 most common forms of internal credit enhancement?
reserve funds, overcollateralization, and senior/subordinated structures
What are reserve funds?
either:
cash reserve funds- straight deposits of cash generated from issuance proceeds; part of the underwriting profits from deal are deposited into a fund, usually put into money market
2. excess servicing spread accounts- allocated excess spread after paying out net coupon, servicing fee, and others expenses into a separate reserve account to be used to cover possible future losses
What is overcollateralization?
if the amount of the collateral exceeds the amount of the liability of the structure, the deal is overcollateralized
What is the senior-subordinated structure?
divided into a senior tranche and a subordinated tranche; subordinated tranche absorbs losses upto to its total value; protects senior tranche
What is the pass-through structure?
each certificate holder is entitled to a pro rata share of the cash flow from the underlying pool of loans or receivables
What are close-end home equity loans?
has a fixed maturity and the payments are structured to fully amortize the loan by the maturity date
What are manufactured housing-backed securities?
backed by loans for manufactured homes- aka mobile homes, built in factory then transported; fully amortized loans; loans small, credit quality poor, home depreciates fast- makes refinancing difficult so prepayment risk is less; maturity 15-20yrs
Who issues auto loan-backed securities?
financial subsidiaries of auto manufacturers, commercial banks, independent and small financial companies; maturity 3-6 years
What is absolute prepayment speed (ABS)?
how prepayments are measured for auto loan-backed securities; monthly prepayment expressed as a percentage of the original collateral amount
What are credit card receivable-backed securities?
securities backed by credit card receivables issued by banks, retailers or travel and entertainment companies; nonamortizing security
What is the lockout or revolving period?
the principle payments made by credit card borrowers comprising the pool are retained by the trustee and reinvested in additional receivables to maintain the size of the pool; during the period, the cash flow that is paid out to security holders is based on finance charges collected and fees
What does the cash flow of credit card receivables consist of?
finance charges collected, fees and principal
What is the principal amortization period?
after the lockout period when the principal is no longer reinvested but paid out to investors
What is early amortization?
repayment of the principal prior to the end of the lockout period
What are collateralized bond obligations (CBOs)?
asset-backed security backed by a diversified pool of: noninvestment grade corporate bonds, emerging market bonds, bank loans to corporate entities