Pegasus2008

Per my understanding:

The investor receives the minimum of the two payments as laid out in exhibit 13, regardless of the prepayment speed. In other words, whether the prepayment speed is 200 PSA in month 1, 210 in month 2, 310 PSA in month 1 or 80 PSA in month 1 (in your questions) the investor will receive $508,169 in month one and $569,843 in month two.

HOWEVER.... The PAC tranche is structured assuming a CONSTANT prepayment rate throughout its planned life. So if the actual prepayment in mnth 1 is 310 PSA, the PAC may bust before the end of life if the actual prepayments remain high. This is explained further in the section on "effective PAC collars" (I think they were called).

So if your first few months pay out at 310 PSA, your effective PAC collar may move from 90-300 PSA to something like 90 - 280 PSA. So if your first few months are high, but then the prepayments drop to something low (e.g. 95 PSA) and stay there, you might be ok.