Servicing advance
Asset-Backed Securities glossary · Asset Backed Securities
Definition
Cash the servicer advances to cover delinquent borrower payments to bondholders; recoverable from later collections or proceeds at default.
Servicing advance in plain English
When a borrower pays late, the bondholders still expect their money on time. A servicing advance is the servicer's own cash, fronted temporarily to cover that missing payment so investors get paid on schedule. Think of a friend spotting you concert money when your paycheck is late, expecting you to pay them back soon. The servicer gets this money back later — out of the borrower's eventual catch-up payment, or from the proceeds if the loan defaults and the collateral is sold — so it's a loan, not a gift.
Learn these first
Related Asset-Backed Securities terms
Asset-Backed Securities practice questions · Asset-Backed Securities flashcards · Asset-Backed Securities study guide