Question: What is the recourse and non-recourse loans?
Answer: See below - Recourse Loans: In this case borrower has to pay the entire loan in any case, like even disposing the property is not able to generate the enough money to repay the loan. He has to make other arrangements to make the loan payment. (RMBS falls under this category) - Non-Recourse Loans: If there is a default, the lender looks to the proceeds from the sale of the property for repayment and if does not fulfil all the balance then lender can not claim further. Hence, lender can only look to the income-producing property backing the loan for interest and principal repayment. Therefore, the lender must view each property as a stand-alone business and evaluate each property using measures that have been found useful in assessing credit risk. (CMBS falls under this category)
Question: What are ABS (Asset Backed Security)?
Answer: These are not based on the mortgages, Asset-backed securities are securities collateralized by assets that are not mortgage loans. This includes student loans, credit card receivables, home equity loans, and automobile loans etc.
Question: What are the characteristics based on which bond differs from each other?
Answer: Bonds differ on a number of dimensions, which include type of - Issuer - Maturity - Coupon - Principal amount - Method of redemption (Cash, stock etc) - Embedded options (Call and put)
Question: What all are the possible embedded options in debt instruments?
Answer: Below are the Embedded options in a debt instrument - Call provisions - Refunding provisions - Prepayment provisions - Optional accelerated provision - Put provision - Conversion provision.