medium · Asset-Backed Securities waterfalls
What is 'Principal Leakage' in the context of shifting interest and why is it prevented during the lockout period?
- The distribution of principal to subordinate tranches before the senior tranches have achieved a safe level of over-collateralization.
- The early payoff of senior bonds that forces the entire securitization trust to be wound down and legally terminate too soon
- The loss of stated principal balance that occurs when borrowers pay off their outstanding loans at a steep discount to face value
- The servicer's operational failure to promptly transfer all collected borrower payments deposited into the trust's designated collection account
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