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Basic Question 11 of 11
The amount of overcollateralization changes due to ______.
II. amortization
III. prepayments
I. defaults
II. amortization
III. prepayments
User Contributed Comments 6
| User | Comment |
|---|---|
| kodali | I can understand the % of over-collaterization changes due to ii and iii. How can the amount change due to ii and iii with out any defaults. |
| VenkatB | Day1: 100 Liability 105 Collateral (105-100)/100 = 5% over-collaterization Day 180 (After 6 months) : Assume all the payments (total =50) are made as per the amortization schedule 50 Liability 55 Collateral (55-50)/50 = 10% over-collaterization Day 270 (After 9 months) : Assume payments are made as per the amortization schedule & $10 of prepayment. 15 Liability (it would have been 25 without prepayment) 30 Collateral (30-15)/15 = 100% over-collaterization Defaults will have the negative effect on the % over-collaterization |
| joywind | why does this have something to do with %? |
| reganbaha | defaults will consume some of the % overcollaterization |
| quanttrader | ii & iii are essentially the same (in this context, default would require higher collateral and therefore not as much overcollaterized- ie collateral used to cover defaults |
| Fabulous1 | The absolute amount would only be changed through default. Amortization and prepayment would change the amount relative to the outstanding obligation |
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Learning Outcome Statements
describe typical credit enhancement structures used in securitizations
CFA® 2024 Level I Curriculum, Volume 4, Module 18.