medium · Asset-Backed Securities asset-nuances

In a CMBS transaction, what occurs when an 'Appraisal Reduction Amount' (ARA) is triggered on a delinquent loan?

1. It immediately and automatically forces the delinquent borrower to pay down the loan to a strict 60% loan-to-value ratio at once.
2. It reduces the amount of interest advances the servicer must make, potentially leading to interest shortfalls on junior bonds.
3. It formally allows the servicer to permanently stop collecting rental payments from the underlying commercial tenants.
4. It automatically shifts operating control of the deal away from the B-piece buyer and over to the senior AAA certificateholder.

Sign up free to see the explanation and track your rank →