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KIC000085 - Credit risk I Credit risk:1 Credit rink is the...

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Unformatted text preview: Credit risk I Credit risk [:1 Credit rink is the possibility that borrowers will make late payment: or even dehult u The bili of default is influenced economic oonditioris and a?“ l! b? . me level at equity invested by in. borrower u The MS income level I The W: credit history r:i Limiting exposure to medii risk I F'nana'al institutions ran purchase insurance - Finance“ instimiions can maintain the «remain-y originate Risk from Investing in Mortgages (cont‘d) I Measuring risk i] D Financial institutiomatlempt to estimate the future cash flows to be generated from mortgage portfolio: in venous future periods - Prepayment risk and end-t risk were uneemhty about future payments I Senfiflvity err-Ml: an be need he toreustash flows [or Maren: marine - Reviewof financial statements to monitor risk - Men interest rates rise. the reported vine of madame-backed securities Ire not revised I Men in the vamofmurtuege-baekedueuritiesis only recognized Mien the financill institution edls them It I lose Mortgage-Backed Securities 1% I Mortgage-backed securities are securities backed by mortgage loans 1:] issuing mortgagebsdted securities is an alternative in selling mortgages outright in the secondary I The most common are mortgage peas-through securities :1 Agmup of marl-93W held by tmsteeserves as milatam El 0 Inherestend rinclpal on the mange s are se a ,Vfi'tid'l paeaee them mean to the mature mortgage-batted secumies Financial institutions earn fees hum serviu‘ng the mange as while avoiding exposure to interest rate risk and credit ris ...
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