medium · Asset-Backed Securities waterfalls
A subprime auto loan ABS pool has a 'stepped' cumulative net loss trigger. At month 24, the trigger is set at 1.50%.
If actual cumulative losses at month 24 are 1.85%, and the structure is currently paying pro-rata between Class A and Class B, what is the typical structural consequence?
- The principal waterfall flips to 100% sequential-pay to Class A until retired.
- The reserve account is doubled in size using a one-time contribution from the sponsor.
- The servicer is required to repurchase the defaulted loans at their original balance.
- The Class B coupon is suspended and used to cover the loss shortfall.
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