medium · Asset-Backed Securities
How does the 'Step-down' date in a Home Equity ABS affect the credit support of the senior tranche in a successful performance scenario?
- It forces a mandatory redemption of the senior tranche at par regardless of the pool balance.
- It allows the subordinate classes to receive principal, which prevents the senior tranche's relative credit support from growing indefinitely.
- It triggers an immediate release of all funds in the reserve account to the originator.
- It reduces the senior bond's coupon to match the decline in the weighted average coupon (WAC) of the pool.
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