easy · Asset-Backed Securities
In the context of the Dodd-Frank Act, what does 'horizontal risk retention' specifically require an ABS sponsor to do?
- Retain exactly 5% of the face value of every single class of notes issued by the trust.
- Retain the most subordinate interest (the 'first-loss' piece) in an amount equal to at least 5% of the fair value of all ABS interests.
- Maintain a reserve account equal to 5% of the total interest collections each month.
- Obtain a guarantee from a AAA-rated monoline insurer for the bottom 5% of the pool.
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