CA Final · Advanced Financial Management · Securitization
Kaveri Bank securitizes a Rs 200 crore pool of home loans through an SPV. The servicer, Kaveri Bank itself, collects EMIs from borrowers and passes them on to the SPV for a fee. Which statement best describes the servicer's role and the reason an SPV is used?
The servicer collects EMIs, passes the money to the SPV and manages recoveries for a fee. The SPV is used to legally isolate the pooled assets, making them bankruptcy-remote from the originator, so investors depend on pool performance rather than the originator's solvency.
- AThe servicer collects and remits payments and handles recoveries; the SPV is used to isolate the assets from the originator's insolvency riskCorrect
- BThe servicer guarantees all investor payments; the SPV is used to avoid issuing any securities
- CThe servicer rates the certificates; the SPV is used to allow the originator to keep the assets on its own books
- DThe servicer underwrites the issue; the SPV is used so that borrowers pay the investors directly
Explanation
The servicer administers the pool: collecting instalments, remitting to the SPV and pursuing defaults. The SPV is bankruptcy-remote, so that investors' claims depend on the pool and not on the originator's financial health. The other options confuse the servicer with a guarantor, rating agency or underwriter.
Did you get it right without looking?
One question tells you little. A timed set on Securitization shows your real accuracy, how long you take and where you lose marks.
More Securitization questions
- In a typical Indian securitization of a pool of vehicle loans, the originator sells the receivables to an entity that is set up only to hold…
- Kaveri Bank sells a Rs 100 crore pool of loans yielding 12% p.a. to an SPV. The pool has a weighted average residual life of 3 years and the…
- In a securitization, the originator sells loans to an SPV and agrees to give no recourse beyond a limited first-loss cushion. Which feature …
- An SPV buys a pool of receivables with a face value of ₹100 crore from Bharat Auto Finance. The pool yields 12% p.a. to the SPV. The SPV iss…
- Meridian Bank sells a pool of housing loans of Rs 200 crore carrying interest at 11% p.a. to an SPV. The SPV issues pass-through certificate…
- In a securitization, the investors' securities are structured into senior and subordinated tranches so that the first losses on the pool are…