medium · Asset-Backed Securities
In a 'second-priority principal' waterfall structure, how does excess spread trapping physically increase the overcollateralization amount?
- By adding extra cash into the trustee's reserve account.
- By increasing the interest rate charged to the underlying borrowers.
- By issuing new subordinate bonds to the originator.
- By using excess interest to pay down bond principal faster than the collateral amortizes.
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