Level 1 CFA® Exam:
Non-Mortgage Asset-Backed Securities

Non-mortgage assets used as collateral in securitization include:

• auto loan and lease receivables,
• credit card receivables,
• personal loans,
• commercial loans.

Cash flows from amortizing loans include:

• interest,
• scheduled principal repayment,
• prepayments.

If there is no principal repayment schedule, we deal with non-amortizing loans.

Examples of ABS backed by amortizing loans are:

• RMBS,
• auto loan ABS.

Examples of ABS backed by non-amortizing loans are:

• credit card receivable ABS.

Cash flows for credit card receivable ABS consist of:

• finance charges, that is interest paid by the borrower on the unpaid balance outstanding after the grace period. It can be fixed or floating,
• fees,
• principal repayments.

During the lockout period, the cash flows include only finance charges and fees. The principal repayments are invested in new credit card receivables.