Skip to content

CFA Level I · CFA Level I Exam · Mortgage-Backed Security (MBS) Instrument and Market Features

A CMBS investor in a senior tranche is most likely protected from prepayment risk because:

CMBS investors are most likely protected by loan-level call protection, such as prepayment lockouts, defeasance, yield maintenance or penalties. Structural protection from tranche seniority also helps. Non-recourse status concerns default remedies, not refinancing, and servicers do not guarantee loans.

  1. Athe servicer guarantees every loan against default
  2. Bcommercial loans commonly carry call protection such as defeasance or prepayment lockoutsCorrect
  3. Cborrowers cannot refinance because the loans are non-recourse

Explanation

CMBS have call protection at the loan level (lockouts, defeasance, yield maintenance, penalties) and at the structure level through sequential tranching. Servicers do not guarantee loans, and non-recourse status does not prevent refinancing.

Did you get it right without looking?

One question tells you little. A timed set on Mortgage-Backed Security (MBS) Instrument and Market Features shows your real accuracy, how long you take and where you lose marks.

Practise Mortgage-Backed Security (MBS) Instrument and Market FeaturesFree diagnostic mock

More Mortgage-Backed Security (MBS) Instrument and Market Features questions