Sequential-pay principle comes from where? received, therefore, structure, 500

dirk01

Exhibit 5 (FI page 383), shows a simple sequential pay structure of $400 par, with 4 tranches. Each tranche coupon is 7.5%, with tranche A par amount = $194,500,000. Interest received by this whole structure is 0.075 * $400m /12 = $2.5m.

Since tranche A makes up 48.625% of the whole structure ($194,500,000 / $400m), therefore it gets 0.48625 * $2,500,000 = $1,215,625, which is correctly shown in the schedule on next page. No problem here.

But they show that tranche A gets a principle payment of $709,923, which I can't see from where! The remaining interest payment ($2.5m - $1,215,624 = $1,284,375) gets distributed to the other tranches, and this is correctly shown on the schedule. So from where have they pulled the $709,923?

redskins44

prepayments are based on 165PSA. So there is some overpayment happening - which is getting paid to the Sequential tranche A.

CP

Sportsman

cp got there first.

NO EXCUSES



Edited 1 time(s). Last edit at Tuesday, May 11, 2010 at 06:30PM by bpdulog.

BelalM

Computation of the 709923 is shown in Exhibit 4.

400Mill Prin, 8.125% WAC on Collateral, Month 1, but 4 Months seasoned.
Mortgage Pmt=2975868
Interest = 2500000 (Paying 7.5% per month)
SMM=0.00111

Prin=267535
Prepayment=0.00111(400Mill-267535)=442389

Total Prin Paid=442389+267535=709923

CP

luda002

as regards your question - those are projections based on current conditions.

Prepayments are always iffy - there is a very high probability that prepayment cash flows may not pan out as scheduled. So these are really projections, of best case scenario.

How they cover it in the event the prepayments do not happen - is entirely not in scope... I do think they are assured that there will be extension on the CMO tranches - which means they get interest and principal for a longer time.

CP

iteracom

aha..it's based on WAC not the passthrough rate! So, the CMO collects $2,975,868 from mortgages, keeps (8.125%-7.5%)/12*$400M = $208k for themselves, and pay the tranches $2.5m in interest. But something is missing... They collected $2,975,868, paid out $2,500,000, they still have $475,686, of which they kept only $208k...if my math is right, there is still money left!