Question

A $150 million pool of 15-year mortgages has a weighted average coupon of 3.5% per year, and pass-through securities backed by the pool have a coupon of 3.0% per year. Guarantee and service fees are 0.5% per year of the pool principal balance at the beginning of each month. The pool has mortgages with $73 million of principal outstanding at the beginning of the month. During the month, payments for scheduled principal, interest, and prepaid principal total $1,096,764. If you bought securities with $150,000 of par value when they were issued, what amount will you receive for the month? OA) $1,066.35 OB) $1,126.08 OC) $1,119.56 OD) $1,101.22 O E) $1,083.04

Answer 1

Ownership % = Amount bought / Amount of Pool = $150,000 / $150,000,000 = 0.001, or 0.1%

Monthly Fees = Mortgage Amount * Monthly Fee Rate = $73,000,000 * (0.005/12) = $30,416.67

Payment = [Total Payment - Monthly Fees] * Ownership %

= [$1,096,764 - $30,416.67] * 0.1% = $1,066,347.33 * 0.001 = $1,066.35

Hence, Option "A" is correct.