Question
Assume you set up a real estate mortgage investment conduit (REMIC) that guaranteed that the class B tranche would bear all the credit risk, and
Assume you set up a real estate mortgage investment conduit (REMIC) that guaranteed that the class B tranche would bear all the credit risk, and the class A tranche would lose only if the class B tranche holders were not repaid. What is the maximum interest rate you could offer the class B tranche holders and still make a profit from securitizing the loans if the class A tranche buyers were willing to accept a 7 percent return on their 90 percent interest in a pool of mortgages that generated an 8 percent interest return? (The class B holders would hold the other 10 percent interest in the pool.)
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