Why is the senior-subordinated structure a form of credit enhancement?
What will be an ideal response?
Credit enhancement is the process of reducing credit risk by requiring collateral, insurance, or other agreements to provide the lender with reassurance that it will be compensated if the borrower defaulted. A senior-subordinated structure is a form of credit enhancement because it serves to control credit risk in a manner that is satisfactory to the lender. A senior-subordinated structure creates credit enhancement for bond classes that are provided for by other bond classes within the structure. For example, the senior bond class is being protected against losses by the subordinated bond class.
We can compare what is being done to distribute credit risk in a nonagency MBS with what is done in an agency CMO. In an agency CMO, there is no credit risk for Ginnie Mae-issued structures and the credit risk of the loan pool for Fannie Mae and Freddie Mac issued structure is viewed until recent years as small. What is being done in creating the different bond classes in an agency CMO is the redistribution of prepayment risk. In contrast, in a nonagency MBS, there is both credit risk and prepayment risk. By creating the senior-subordinated bond classes, credit risk is being redistributed among the bond classes in the structure. Hence, what is being done is credit tranching. Can prepayment risk also be redistributed? This is typically done in nonagency MBS but only at the senior bond class level. That is, the senior bond classes in a nonagency CMO structure can be carved up to create senior bond classes with different exposure to prepayment risk.
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Generally accepted methods of accounting for a change in accounting principle include
A) restating prior years' financial statements presented for comparative purposes. B) including the cumulative effect of the change in current period net income. C) prospective changes. D) making a prior period adjustment.
Osgood Company provided the following income statement for Year 1 and Year 2:?Year 2Year 1Sales$ 220,000$ 160,000Cost of goods sold___156,000__105,000Gross margin64,00055,000Less operating expenses:?? Selling and administrative expenses26,00015,000 Interest expense_____2,000____3,000Income before tax36,00037,000Income tax expense____10,800___11,100Net income$ 25,200$ 25,900Required:(a) Perform vertical analysis on Osgood's income statements for Year 1 and Year 2. Round your answer to one decimal place (i.e. 22.4%)(b) Comment on the results, comparing Year 1 to Year 2.
What will be an ideal response?
Zack Peyton borrowed $398,000 from Fifth First Bank to purchase a new home. Zack gave First Bank a mortgage on his home. The mortgage was recorded on January 3, 2014. Zack had made a down payment of $42,000. When Zack moved in, he purchased an in-ground swimming pool from Paddock Pools for $35,000. Zack paid Paddock $4,000 and Paddock financed the remaining amount for him, recording a mortgage
for $29,000 on February 26, 2014. Zack needed window coverings, landscape, and some new furniture. Wells Fargo gave Zack a $150,000 home equity line of credit, secured by a mortgage on Zack's home for $150,000. Wells Fargo recorded the home equity credit line mortgage on February 1, 2014. Zack, because of a bonus at work, did not draw on the line of credit until June 10, 2015, using $25,000. The economy went south somewhere around September 2015. The value of Zack's home dropped by almost 50%. Zack lost his job. He could no longer make his payments. Fifth First Bank served Zack with a notice of foreclosure on November 1, 2015. ?With respect to the mortgage loan from Fifth First Bank: A)?Zack is the mortgagor. B)?Zack is the mortgagee. C)?Fifth First Bank is the mortgagor. D)?None of the above
When a user uploads a photo or video in Facebook, he is executing a procedure
Indicate whether the statement is true or false