“In the case of non-amortizing collateral, due to the call provision ont he ABS while the underlhing collateral (loans) has no prepayment risk, the securities backed by such collateral may have a prepayment (call) risk.”
Can anyone explain this?
Gazhoo how r u finding FI ?
very long…I switched over to Schweser. I don’t find it too difficult, but, I have 2 sections left now. I’m trying to wrap this up and move on to PM/Derivatives…What section are you on?
Started FI a few days back. But last 3 days got stuck in office politics and dint do anything 
Can Fi be done in 10 days as now i have gone behind schedule
the problem with FI is that there is a lot of material and too many EOC q’s.
I have completed first 3 reading of FI. will start 4th today
What they are saying is that the underlying collateral i.e. the loans that back the ABS may not have any prepayment risk. Howerver, the ABS deal itself may be callable. An example would be, if the collateral in the deal falls below some performance benchmark the prospectus may allow the trustee to collapse (i.e. call) the entire deal. Because the trustee doesn’t want to be administrating over small P&I payments, another possibility would be if the propsectus allows the trustee to call the ABS deal if the entire deal loan balance falls below say, 10% of the original deal loan balance).
what the hell is PAC- planned amortizationa tranche 
This reading really sucks.
I am doing just 50% text basically imp points as per los
I think that this question deserves its own thread, rather than risking hijacking this thread.
If you start a new thread with this question, I’ll reply.
All they’re saying is that if you have an ABS backed with a bunch of noncallable bonds, the ABS itself can be callable.
Why not? It shouldn’t be surprising, and it shouldn’t be a problem.
Although generally correct this repsonse isn’t specific enough
First, lets look at what causes non-amortizing collateral to have zero prepayment risk. It is the fact that it is non-amortizing, or in other words it doesn’t have a principal repayment schedule (i.e credit card receivables) therefore the concept of prepayment doesn’t “exist” with respect to the COLLATERAL. For example, when I pay my CC I don’t have a planned principal payment just a required min payment which mostly accounts for interest. However I can pay the full balance (prin + int) at anytime, this can cause prepayment with respect to the ABS. The interest is paid to the investor as usual, however the principal can be treated in two ways 1) It can be re-loaned, maintianing the principal in the ABS (revolving structure), therefore not being paid back (removing the “prepayment” of the ABS), or it can be used retire the ABS which causes a prepayment to the investor as the SPV would return the principal back to the investor as it is unwound.
Im pretty sure the way to make the distinction is to look at the terms of the Lockout, does the ABS have the ability to reloan ( no prepay)or does it have a amortization provision(prepay due to retirement) or a rapid amortization provision(prepay due to retirement)
Nice!