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for securities back by residential mortgages, the structure that is most likely to provide credit enhancement...

for securities back by residential mortgages, the structure that is most likely to provide credit enhancement is :

a. sequential-pay trenches.

b. PAC and support trenches.

c. senior and subordinated tranches.

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Answer #1

Answer- option (c)

  • Senior and subordinate trenches consists of assets having higher credit ratings than other PAC and sequential trenches.
  • These are pooled collection of securities with various diversified portfolios. So that risk factors can be hedge effectively and stable return can be generated to the investors.
  • Due to securitization, steady cash flow will be generated for securities backed by mortgages. As a result more credits will be provided.
  • Hence debt obligations can be meet in time. It ensures better financial and liquidity position for the business.

Thank you. All the best for your exam!

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