1. Module 17 — A Basic Pass-Through Is Described as Having “Different Tranches”
Curriculum location: The Benefits of Securitization, pass-through-securities discussion, p. 447.
"Pass-through securities pass through the payments proportionally across the different tranches and redistribute the payment risks to investors seeking differing levels of risk exposures."
The sentence assigns proportional payments and differing risk exposures to tranches within a basic pass-through. The module's p. 444 self-assessment instead attributes cross-tranche cash-flow redistribution to collateralized mortgage obligations and says pass-throughs are less complex. The next bullet on p. 447 likewise assigns scheduled cash-flow redistribution, subordination, and different risk exposures to structurally enhanced securities. A basic pass-through allocates pool principal and interest pro rata among ownership interests; it does not itself create prioritized risk classes.
Correct reading: Basic pass-through interests receive principal and interest pro rata according to ownership. Tranche-specific payment priority and risk redistribution belong to multi-class structures such as collateralized mortgage obligations.
This distinction helps candidates separate ordinary pass-through allocation from structured tranche mechanics.
2. Module 17 — Trustee Cash-Flow Reports Are Called the Only Source for Updating ABS Credit Standing
Curriculum location: The Securitization Process, trustee-report discussion, p. 457.
"These reports are the only source of information for investors to update the credit standing of the ABS."
The passage presents trustee cash-flow reports as the exclusive information investors can use to update an ABS credit assessment. That absolute claim is too broad. Depending on the transaction and jurisdiction, investors may also receive servicer or investor reporting, collateral-performance data, rating actions, and material-event disclosures. As one concrete regulatory example, EU securitization transparency rules require recurring underlying-exposure information and investor reports, as well as transaction documents and material-event information.
Correct reading: Trustee cash-flow reports are an important source for credit monitoring, not the only source. Investors should also consider the other transaction and regulatory disclosures available for the ABS.
This avoids reducing ongoing structured-credit surveillance to a single reporting channel.
3. Module 19 — CMO Seniority Is Said to Reduce Overall Prepayment Risk
Curriculum location: Learning Module Overview, p. 498.
"the more senior a tranche is, the less exposure it has to prepayment risk and default risk"
The curriculum turns tranche seniority into a single ranking for both prepayment risk and default risk. The default-risk relationship is valid, but its own sequential-pay discussion shows why the prepayment part is false: the first tranche receives principal first and is protected mainly from extension risk, while later tranches receive some protection from contraction risk. Priority therefore reallocates the two components in different directions; it does not make every form of prepayment risk fall monotonically with seniority.
Correct reading: CMO tranching redistributes prepayment risk. More senior tranches have less default-risk exposure, while contraction and extension exposure depends on each tranche’s principal-payment rules.
A candidate who follows the printed rule can rank CMO prepayment risk incorrectly and choose the wrong tranche for a stated risk objective.
4. Module 19 — Time Tranching Question Set Item 3 Attributes Lease-Payment Control to the Lessor, Not the Lessee
Curriculum location: Time Tranching, Question Set item 3 solution, p. 506.
"Prepayment risk is the uncertainty that the cash flows will be different from the scheduled cash flows as set forth in the lease agreement because of the lessors’ ability to alter payments."
The solution frames the cash flows as arising under a lease. The lessee is the payment obligor and can change the timing of those payments; the lessor receives the altered cash flows. The module’s adjacent prepayment definition likewise assigns faster or slower repayment to the borrower, so calling this the lessor’s ability reverses the counterparties.
Correct reading: Under the lease, prepayment risk arises from the lessee’s ability to alter payment timing, not the lessor’s.
A candidate who follows the printed wording can reverse the option holder and the causal mechanism of prepayment risk.
5. Module 19 — The Mortgage-Loan Definition Says the Lender Has a First Lien
Curriculum location: Mortgage Loans and Their Characteristic Features, opening definition, p. 506.
"The mortgage lender has a first lien and security interest in the property, which gives the lender the right to seize the collateral if the borrower does not pay as agreed."
The unqualified statement makes first-priority status an inherent feature of every mortgage. Elsewhere, the same topic distinguishes prime first liens from second or subordinate liens and refers to loans that rank behind primary mortgage liens. A security interest and its priority are therefore separate facts.
Correct reading: A mortgage lender holds a lien and security interest in the property; that lien may be first-priority or subordinate.
Without this distinction, a candidate can treat junior-lien mortgages as impossible and misread their recovery priority.
6. Module 19 — PAC Support Tranches Are Treated as Optional
Curriculum location: Residential Mortgage-Backed Securities (RMBS), PAC/support structure definition, p. 517.
"A further evolution of the sequential pay CMO are CMOs that include Planned Amortization Class (PAC) tranches, occasionally accompanied by support tranches."
Later in the same paragraph, the curriculum says the support tranche absorbs prepayment variability while prepayments remain inside the specified range. That absorption is what lets the PAC tranche follow its planned principal schedule. The supporting class may be called a companion, support, or non-PAC tranche, but the function is not optional.
Correct reading: PAC protection requires one or more support, companion, or non-PAC classes to absorb principal-payment variability within the PAC collar.
The correction tells candidates which class bears contraction and extension variability when the PAC schedule is maintained.
7. Module 19 — Exhibit 7 Uses for an Equal-Weight Coupon Average
Curriculum location: Commercial Mortgage-Backed Securities (CMBS), Exhibit 7 weighted coupon payment discussion, p. 520.
Exhibit 7 gives four tranches of GBP25 million with coupons of , , , and . Because the principals are equal, their weighted coupon is the simple mean:
The printed value also changes the spread implied by the stated WAMP from the correct bp to bp.
Correct reading: The weighted coupon payment is , and the implied spread is , or bp.
Using the printed number prevents a candidate from reproducing the coupon average and produces the wrong transaction spread.
8. Module 19 — The Defeasance Paragraph Assigns the Portfolio Cost to the Issuer Instead of the Borrower
Curriculum location: Commercial Mortgage-Backed Securities (CMBS), defeasance mechanism, p. 521.
"The cost of assembling such a portfolio is the cost of defeasing the loan that must be paid by the issuer."
The same paragraph first states that the borrower must purchase the matching government-security portfolio. The preceding transaction description says the independent entity issues the CMBS. Switching the cost payer to that issuer therefore contradicts the transaction roles already established by the module.
Correct reading: The borrower exercising defeasance purchases the matching government-security portfolio and bears the cost of assembling it.
A candidate who follows the printed wording can assign the defeasance-portfolio cost and related prepayment incentive to the issuer rather than the borrower.
9. Module 19 — Question Set Item 3 Asks About Default Instead of Prepayment
Curriculum location: Commercial Mortgage-Backed Securities (CMBS), Question Set item 3 stem and solution, p. 525.
"Which of the following mechanisms is least likely to offer investors protection from default on the individual loan level?"
The solution eliminates option C on a different basis:
"C is incorrect because prepayment penalty points (i.e., predetermined penalties that a borrower who wants to refinance must pay to the lender) offer investors call protection on the individual loan level."
The surrounding section defines defeasance and prepayment penalty points as individual-loan call-protection mechanisms. Under the literal default-risk stem, a balloon structure increases default risk while penalty points are neutral to default protection. The solution nevertheless eliminates C only because penalty points provide call protection—a different risk from the one asked about. The stem and solution therefore test different concepts.
Correct reading: The stem should ask which mechanism is least likely to protect investors from early prepayment at the individual-loan level. The balloon payment structure is then the unique answer.
The correction restores answer validity and keeps credit default, balloon risk, and call risk conceptually separate.
Complete Securitization and Mortgage-Backed Securities Errata Index
Scope: Modules 17, 19, pp. 443–464 and 497–536 (printed page numbers).
Reviewed modules. Module 17, pp. 443–464; and Module 19, pp. 497–536.
What this review covers. Errors in the printed curriculum that would change a candidate's answer or understanding: wrong numbers, wrong formulas, reversed logic, and statements that contradict the volume's own data. It does not list spelling mistakes, equation-numbering slips, or wording that is loose but defensible.
The table lists every high-value, objectively confirmed curriculum error admitted for these modules. Repeated instances of the same defect are consolidated into one row. Extraction or import-fidelity problems, disputed readings, and low-value editorial issues are outside the public errata scope.
Scroll horizontally to see every column.
References
- Investor.gov — Mortgage-Backed Securities and Collateralized Mortgage Obligations
- ESMA — Securitisation Regulation Article 7 transparency requirements
- Federal Reserve Board — Definitions for Qualifying Commercial and Real Estate Loans
- U.S. Securities and Exchange Commission — Protecting Investors: A Half Century of Investment Company Regulation
- Fannie Mae — Defeasance Option Procedures
This article is an independent candidate-focused analysis of substantive errors identified in our review of the CFA Level I 2027 Curriculum, Volume 6 Fixed Income, Modules 17 and 19. It is not an official CFA Institute errata notice, and inclusion here must not be read as CFA Institute confirmation, endorsement, or approval.