A collateralized mortgage obligation (CMO) has the characteristics below. Which of the following are most accurate regarding its credit enhancement?

| Return on assets | 8.75% |

|---------------------------|-------------|

| Senior tranche | $400,000,000 |

| Subordinated tranche A | $120,000,000 |

| Subordinated tranche B | $50,000,000 |

| Value of collateral | $600,000,000 |

| Interest paid on liabilities of SPE | 7.50% |

| Fees and expenses | 0.60% |

I. There is overcollateralization.

II. The investors gain credit enhancement through the excess spread.