medium · Asset-Backed Securities waterfalls
A subprime Home Equity Loan (HEL) pool uses a 'shifting interest' structure. In Month 36, the 60-day delinquency rate exceeds the specified threshold.
How does this affect the 'step-down' of credit enhancement?
- The senior prepayment percentage steps down from 100% toward its scheduled reduced share.
- The junior tranches are immediately written down to zero to protect the senior class.
- The pool is put back to the originator under a mandatory clean-up call provision.
- The step-down is suspended, and 100% of prepayments continue to go to the senior class.
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