easy · Asset-Backed Securities tranching

What is the role of a 'Backup Servicer' in maintaining the credit quality of an ABS?

1. To stand ready to take over the collection and administration of the loans if the primary servicer fails or is terminated.
2. To independently verify the loss and cash flow assumptions the rating agencies used when sizing the bond tranches.
3. To inject additional cash into the trust from its own reserve fund whenever borrowers stop making scheduled loan payments.
4. To automatically lower the coupon rate owed on outstanding bonds whenever prevailing market interest rates rise above the benchmark.

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