medium · Asset-Backed Securities tranching
A Home Equity Loan (HEL) ABS structure uses 'Shifting Interest' mechanics. During the first 36 months, the senior prepayment percentage is set at 100%.
What is the primary purpose of this feature?
- To provide the servicer with additional float income on collected principal
- To hedge against the interest rate basis risk posed by the LIBOR-to-SOFR transition
- To increase the senior credit support by amortizing the senior bonds as fast as possible
- To ensure that the subordinate classes receive their scheduled principal ahead of the senior bonds
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