medium · Asset-Backed Securities regulatory
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 aggregate face value of every single class of asset-backed notes the securitization trust ever issues.
- 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 fully funded cash reserve account equal to 5% of the trust's total monthly interest collections received each period.
- Obtain a full payment guarantee from a AAA-rated monoline bond insurer covering any and all losses on the bottom 5% of the collateral pool.
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