Question

A MPT is being issued backed by a mortgage pool that consists of 100 mortgages with an average balance of 150,000. Mortgages are 10 year FRMs with annual payments. The mortgage rate in all of them is 5%. Assume that there is no prepayment and no servicer/guarantee fee in the projected cashflows of the mortgage pool. If the investor has a 2% discount rate, what will be their valuation of the MPT at origination be compared to the pool's par value at origination ($15,000,000)?

a. Cannot be determined with the information given
b. Higher
c. Equal
d. Lower

Answer 1

The correct answer is option B - higher.

Step-by-step explanation:

The expected return by the investor is 2%.

The provided return by the pool is 5%.

Following that the pool provides a return that is higher than the investor's expected return, it is valued at an amount higher than the par value of the pool.

Therefore, the correct answer is option B - The valuation of the MPT at origination be compared to the pool's par value at origination is higher.