medium · Asset-Backed Securities
In a 'Shifting Interest' structure, what is the purpose of the 'Lockout Period' for subordinate classes?
- To allow the originator to repurchase the worst-performing loans from the pool.
- 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 bondholders from selling their positions in the secondary market.
- To hedge against the risk of rising interest rates on fixed-rate mortgage loans.
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