Various ABS

Summaries

1. HEL is the loan backed by residential property. It is a secondary “mortgage”.

Prepayment uses PPC (prospectus prepayment curve).

HEL-backed securities collateralized with variable rate HELs are known as HEL floaters.

2. Manufactured House-backed securities

E.g. Mobile Home

Less prepayment:

1)      Loan is small. Less saving on refinancing

2)      Fast early year depreciation

3)      Borrowers usually have worse credit to refinance

3. Auto-loan

Absolute Prepayment Speed (ABS) – monthly prepayment as a percentage of the initial value of collateral

SMM = ABS / (1-[ABS(m-1)])

4. Student loan asset-backed securities (SLABS)

Federal Family Education Loan Program (FFELP) – guaranteed by US government up to 98% of principal and accrued interest.

3 periods:

a) deferment period – no payment, no interest accrued

b) grace period – no principle payment but interest accrue

c) repayment period – interest and principal paid

Prepayment –due to default (government guarantee) or consolidation

5. Small Business Administration Loan (SBA) – guaranteed by US government

6. Credit card receivable backed securities

*** Lockout period – interest payment is paid to holder by principal is used to buy more receivables.

*** Principal amortization period – principal is paid to holders

Net Portfolio Yield = Gross Portfolio Yield (finance charges + field collected) – Charge offs (uncollectible amount)