14. How are NHA MBSs structured? D. Indicate whether the following are True or F

Question

14. How are NHA MBSs structured? D. Indicate whether the following are True or False. 1. Index mutual funds typically offer lower MERs than exchange-traded funds. 2. Real estate investment trusts are a type of exchange-traded fund. 3. The majority of Exchange Traded Funds are actively managed. 4. Income trusts tend to pay more tax than corporations 5. Closed-ended funds have excellent liquidity as they can be redeemed directly to the issuer each day. 6. A separately managed account is considered more customizable than a mutual fund. In multi-disciplinary accounts, all assets are held in one account. Fee-based accounts create conflicts of interest. 7. 8. Any advisor can open a discretionary account 10. Family offices specialize in offering services to low income families. 11. Closed-end funds that can buy back their shares are also known as interval funds 12. MBS issued under the National Housing Act generally offer higher yields than . " government bonds of the same term, despite their implicit government guarantee 13. Capital shares are considered less risky than preferred shares

Explanation / Answer

14. National Housing Act Mortgage-Backed Securities (NHA MBS)

NHA MBS are investments that are backed by distinct pools of insured mortgages. Investors in NHA MBS pools receive blended monthly payments of principal and interest, where principal is passed through from payments of the underlying mortgagors and the interest is based on the pool’s coupon rate. The timely payment of NHA MBS principal and interest is guaranteed by the Mortgage and Housing Corporation (MHC), a federal crown corporation fully backed by the Government.

There are two basic types of NHA MBS: non-prepayable and prepayable pools. In non-prepayable pools, the principal on the underlying mortgages can only be repaid according to the original amortization schedule. In prepayable pools mortgagors are allowed to make unscheduled principal payments under certain conditions. Thus, in addition to scheduled principal and interest, investors holding prepayable NHA MBS may also receive unscheduled principal and, in some cases, penalty interest charged to mortgagors who make early prepayments.

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