medium · Frm Part 2 Credit Risk
In securitization, why is 'excess spread' considered a 'flow' rather than a 'stock' of credit enhancement?
- It is only available in 'covenant-lite' structures where losses are delayed.
- It is a fixed reserve account funded by the originator at closing.
- It represents the immediate overcollateralization present at the deal's inception.
- It is earned over time from the interest margin and can be released to equity if not trapped by triggers.
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