If there’s still confusion about this topic- let me provide some clarity. calgaryeng123 is right. The rules of the structure state that the pac investor will receive the lower of the 2 pmts in exhibit 13, regardless of the prepayment speed.
Yes, there is still a question…is it correct to say if the speed is above 300xPSA you will get that much in prepayments, and your schedule of principal repayments will be shorter in duration? The support tranches take the hit if the speed is within 90-300PSA, if not you take the hit. What happens if the speed is below 90PSA?
I think if below 90PSA then the CFs from support tranche will be used to pay for the PAC, the PAC still get their scheduled payment and extension risk for the support tranche will increase. Just a thought.
If the speed is below 90PSA the schedule MIGHT not be met. The risk in this case would be extension risk. The schedule is ony GUARANTEED under one circumstance: the prepayment speed remains constant at one speed between the initial collar