medium · Asset-Backed Securities asset-nuances
In a 'Shifting Interest' structure, what is the purpose of the 'Lockout Period' for subordinate classes?
- To allow the mortgage loan originator to repurchase only the worst-performing loans from the securitized collateral pool entirely.
- To ensure that all prepayment principal is used to retire senior bonds first, thereby increasing the senior class's relative credit support.
- To prevent subordinate class bondholders from freely selling or transferring their certificated positions in the secondary trading market at any time.
- To hedge the trust's overall cash flows against the risk of rising short-term interest rates on the pool's underlying fixed-rate mortgage collateral.
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