Suppose an institution has purchased a $250,000 mortgage loan from the loan originator and wishes to...

Suppose an institution has purchased a $250,000 mortgage loan from the loan originator and wishes to create a mortgage pass-through security. In doing so, this institution will generate revenue by charging a servicing fee of 35 basis points. If the monthly mortgage payment on the loan is $1,250, how much income is passed through to the investor in the mortgage pass through each month (rounded to the nearest dollar)?

Expert Solution

Monthly servicing fee = (Annual servicing fee rate/12) * Outstanding loan balance

= (0.35%/12) * $250,000 = 0.0003 * $250,000 = $72.92

Mortgage pass-through = Monthly mortgage payment - Monthly servicing fee

= $1,250 - $72.92 = $1,177.08, or $1,177

jeff jeffy answered 2 years ago

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