medium · Asset-Backed Securities collateral
How does the 'Shifting Interest' mechanism in a Home Equity ABS structure typically impact the WAL of the Senior (Class A) bonds?
- It extends the Senior WAL by letting subordinates receive principal first for several years.
- It extends the WAL, since the mechanism applies only to scheduled principal, never to prepayments.
- It shortens the Senior WAL by allocating 100% of prepayments to the Senior class for the first few years.
- It has no effect on the Senior WAL at all, but instead it raises the coupon rate paid on the Senior class bonds.
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