tailieunhanh - Prentice Hall Frank Fabozzi Bond Markets Analysis_7

Tham khảo tài liệu 'prentice hall frank fabozzi bond markets analysis_7', tài chính - ngân hàng, đầu tư chứng khoán phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | I MM MM MM BMH vBSBsKHffiS 322 CHAPTER 13 Asset-Backed Securities scheduled principal payment is called a prepayment. Prepayments can be made to pay off the entire balance or a partial prepayment called a curtailment. In contrast to amortizing assets nonamortizing assets do not have a schedule for the periodic payments that the borrower must make. Instead a nonamortizing asset is one in which the borrower must make a minimum periodic payment. If that payment is less than the interest on the outstanding loan balance the shortfall is added to the outstanding loan balance. If the periodic payment is greater than the interest on the outstanding loan balance then the difference is applied to the reduction of the outstanding loan balance. There is no schedule of principal payments . no amortization schedule for a nonamortizing asset. Consequently the concept of a prepayment does not apply. Credit card receivables and certain types of home equity loans described later in this chapter are examples of nonamortizing assets. For an amortizing asset projection of the cash flows requires projecting prepayments. One factor that may affect prepayments is the prevailing level of interest rates relative to the interest rate on the loan. In projecting prepayments it is critical to determine the extent to which borrowers take advantage of a decline in interest rates below the loan rate in order to refinance the loan. Modeling defaults for the collateral is critical in estimating the cash flows of an asset-backed security. Proceeds that are recovered in the event of a default of a loan prior to the scheduled principal repayment date of an amortizing asset represent a prepayment. Projecting prepayments for amortizing assets requires an assumption of the default rate and the recovery rate. For a nonamortizing asset though the concept of a prepayment does not exist a projection of defaults is still necessary to project how much will be recovered and when. The analysis of prepayments .