medium · Asset-Backed Securities abs-core
If a transfer of loans is recharacterized by a court as a 'secured loan' instead of a 'true sale', which risk do investors face?
- The rating agencies must pay back the investors' original principal.
- The underlying borrowers are legally allowed to stop making payments on their loans.
- The interest rates on the bonds are automatically doubled.
- The automatic stay in the originator's bankruptcy could halt payments to the SPE.
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