Financial Risk Manager Part 1

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Explanation:

Correct answer: C

This is the EXCEPT statement, so we are looking for the one that is false.

A is true: non-agency issuance grew significantly before the crisis, partly because agencies were limited to conforming mortgages within size and loan-to-value constraints.
B is true: non-agency issuance collapsed in 2008 as investors lost confidence in mortgage securities not backed by the U.S. government.
C is false: agency securitization does have a major effect on mortgage loan origination. When agency securitization collapsed during the crisis, mortgage lending was affected. Therefore, this statement is the exception.
D is true: non-agency RMBS investors face default risk, while agency RMBS investors are generally protected from default risk but remain exposed to prepayment risk.

Therefore, the incorrect statement is C.

Explanation:

Correct answer: C

This is the EXCEPT statement, so we are looking for the one that is false.

A is true: non-agency issuance grew significantly before the crisis, partly because agencies were limited to conforming mortgages within size and loan-to-value constraints.
B is true: non-agency issuance collapsed in 2008 as investors lost confidence in mortgage securities not backed by the U.S. government.
C is false: agency securitization does have a major effect on mortgage loan origination. When agency securitization collapsed during the crisis, mortgage lending was affected. Therefore, this statement is the exception.
D is true: non-agency RMBS investors face default risk, while agency RMBS investors are generally protected from default risk but remain exposed to prepayment risk.

Therefore, the incorrect statement is C.

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Question-102.3. In regard to residential mortgage-backed securities (RMBS) and the 2007-2009 credit crisis, according to Pietro, each of the following statements is true EXCEPT:

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MManit

Last updated: April 18, 2026 at 11:32

The market share of non-agency issuance (i.e., private-label MBS and CMO) increased dramatically from 1996 to 2006, at least in part, because agencies could only securitize conventional mortgages that could not exceed size limits and an 80% loan-to-value (LTV) ratio

The market share of non-agency issuance plummeted to less than 5% in 2008 because investors became wary of MBS not backed (explicitly or implicitly) by the full faith of the U.S. government.

The crisis showed that the agency securitization market has little or no impact on mortgage loan origination: agency securitization collapsed in 2008 and subsequently, but mortgage lending was not impacted

The credit crisis is (was) characterized by an unusually large number of homeowner defaults. Unlike investors in non-agency RMBS are exposed to default risk, investors in agency RMBS are (were) generally protected against default risk, but they nevertheless are (were) exposed to the early receipt of cash flows as agencies stepped in to repay the mortgages; i.e., prepayment risk.