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

Last updated: January 04, 2023

Non-Mortgage ABS Basics for CFA Candidates

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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.

Level 1 CFA Exam: Credit Card Receivable ABS

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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.

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

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  1. Non-mortgage assets used as collateral in securitization include auto loan and lease receivables, credit card receivables, personal loans, and commercial loans.
  2. Cash flows from amortizing loans include interest, scheduled principal repayment, and prepayments.
  3. If there is no principal repayment schedule, we deal with non-amortizing loans.
  4. Credit enhancements available for auto loan ABSes: senior/subordinate structure, a reserve account, overcollateralization, and excess spread.
  5. Cash flows for credit card receivable ABS consist of: finance charges, fees, and principal repayments.