KBRA Publishes RMBS Research: “RMBS Servicer Stop Advance; Issuers Take Differing Approaches”
24 Februar 2018 - 12:39AM
Business Wire
The RMBS securitization market has experienced considerable
changes post the global financial crisis. One noteworthy change has
been to the treatment of principal and interest advancing, as a
number of transactions have incorporated “stop advance” provisions.
When employing these provisions, KBRA has observed that sponsors
strive to strike a balance between using the feature to mitigate
losses and advancing timeline ambiguity while still maintaining
liquidity for high investment grade securities. As these provisions
have become more prevalent, they have been accompanied by a number
of structural nuances.
- Differing approaches have been used to
mitigate the risk of shortfalls on investment grade (IG)
securities. Some transactions feature augmented payment priorities
for such classes, whereby interest from all available funds is
remitted first to high IG classes before paying principal to such
IG classes. We observed other structures where the risk of
liquidity interruption on the senior securities is mitigated by
excluding the amount of unpaid stop advance interest in the
definition of interest owed within the transaction’s governing
documents.
- The sponsors for some of these same
transactions have added new structural features that enhance
higher-priority security holders’ positions by changing payment
priority or locking-out subordinate security holders from principal
payments based on serious loan delinquencies.
In the publication, KBRA provides color on the “stop advance”
mechanism and how certain issuers are implementing this mechanism
in different ways into their respective transactions. We generally
define the implementation method into a few broad constructs which
address high investment grade class liquidity risk: definitional,
structural, and/or via additional credit enhancement (e.g. excess
spread).
To view the report, please click here.
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Europe
KBRA is a full service credit rating agency registered with the
U.S. Securities and Exchange Commission as an NRSRO. In addition,
KBRA is recognized by the National Association of Insurance
Commissioners as a Credit Rating Provider and a certified Credit
Rating Agency (CRA) by the European Securities and Markets
Authority (ESMA). Kroll Bond Rating Agency Europe Limited is
registered with ESMA as a CRA.
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version on businesswire.com: http://www.businesswire.com/news/home/20180223005860/en/
KBRAAnalytical Contacts:Gary Narvaez,
646-731-2478Directorgnarvaez@kbra.comorRyon Aguirre,
646-731-2382Associate Directorraguirre@kbra.comorJack Kahan,
646-731-2486Managing Directorjkahan@kbra.com