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CMA Final · Strategic Financial Management · Securitization

In a pass-through securitisation, an originating bank transfers a pool of housing loans to a special purpose vehicle (SPV). Investors receive proportionate shares of the principal and interest collected from the pool, less a servicing fee. Which feature identifies this structure as a pass-through arrangement?

A pass-through structure distributes the pool's collected principal and interest to investors proportionately, net of servicing fees, without restructuring the cash flows. Tranching with different priorities belongs to pay-through or structured deals, so it does not identify a pass-through.

  1. ACash flows from the pool are divided into tranches with different priorities
  2. BCollections are passed on to investors pro rata, with no reshaping of cash flowsCorrect
  3. CThe SPV issues zero-coupon bonds that mature on a fixed date irrespective of collections
  4. DThe originator guarantees a fixed return to every investor regardless of collections

Explanation

In a pass-through certificate, investors hold an undivided interest in the pool and receive collections of principal and interest pro rata after servicing costs. Splitting cash flows into tranches is a feature of pay-through or structured securities, not a simple pass-through.

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