medium · Asset-Backed Securities asset-nuances

If this feature is activated, how does it typically affect the overcollateralization or excess spread calculation?

1. It reclassifies a portion of principal collections as finance charge collections to boost portfolio yield and excess spread.
2. It simply allows the servicer to stop deducting all realized losses from the interest waterfall calculations entirely
3. It permanently reduces the coupon paid on the senior-most bonds all the way down to zero percent immediately
4. It requires the indenture trustee to sell the most severely delinquent receivables back to the loan originator at full par value

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