In a mortgage securitization, what is the primary function of a special purpose vehicle (SPV)?
Correct Answer
B) To isolate mortgage assets from the originator's bankruptcy risk
An SPV is a legal entity created specifically to hold mortgage assets separate from the originating lender. This isolation protects investors from the originator's potential bankruptcy and is essential for the securitization process to work effectively.
Why This Is the Correct Answer
An SPV is a legal entity created specifically to hold mortgage assets separate from the originating lender. This isolation protects investors from the originator's potential bankruptcy and is essential for the securitization process to work effectively.
More Mortgage Knowledge Questions
A borrower is comparing two loan offers: Loan A has no points and 4.5% interest rate, Loan B has 2 points and 4.0% interest rate. The loan amount is $400,000. How much will the borrower pay upfront for the points on Loan B?
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A borrower asks about the difference between discount points and origination fees. What is the most accurate explanation?
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An FHA borrower has been paying annual MIP for 8 years on a loan with an original LTV of 89%. The current unpaid principal balance represents 76% of the original property value. What happens to the MIP?
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A borrower has a mortgage with a 5-year balloon payment due. They want to refinance before the balloon payment is due, keeping the same loan amount but extending the term to 30 years. No cash will be received except for a small refund of escrow funds. How is this classified?