easy · Asset-Backed Securities
What is 'Principal Leakage' in the context of shifting interest and why is it prevented during the lockout period?
- The distribution of principal to subordinate tranches before the senior tranches have achieved a safe level of over-collateralization.
- The early payoff of senior bonds that results in the trust being terminated too soon.
- The loss of principal due to borrowers paying their loans at a discount to face value.
- The failure of the servicer to transfer collected borrower payments to the trust account.
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