Question

How are investors in pass-through securities protected against default risk emanating from the mortgagees and the FI/trustee? A) In cases where the bank or the trustee defaults on the timely pass-through of the mortgage payments, GNMA will make the payments.

B) State governments insure them and thus, make the payments.

C) There is no credit risk and thus, no default risk.

D) The local government will chip in and make half of the payments.

E) None of the above

Answer 1

The government national mortgage association guarantee means that Investors with GNMA guarantee donot have to worry about impact of late payments mortgage default on their payments, When mortgage borrower fails to makes a payment, Ginnie mae reimburses for the same.

So the correct option will be (A) Which States that in cases where the bank or the trustee defaults on the timely pass-through of the mortgage payments, GNMA will make the payments.

State governments doesn't reimburse not local government makes half the payments. There are lot of risks involved including credit risk and default risk.so statement (B), (C), ( D) are all False.