Seeing is believing!

Before you order, simply sign up for a free user account and in seconds you'll be experiencing the best in CFA exam preparation.

Find out more
Subject 3. Non-Mortgage Asset-Backed Securities PDF Download

Asset-backed securities are backed by a wide range of asset types.

Non-amortizing loans retain their original loan value during a specific period of their life before the stated maturity date, known as the lockout or revolving period. During this time, principal that is repaid is reinvested to replenish the collateral pool.

Auto Loan Receivable-Backed Securities

  • Underlying collaterals: amortizing auto loans and lease receivable
  • Prepayment risk due to repossession, early payoff, insurance settlement from wreck, sale of vehicle, or refinancing (rare)
  • Credit enhancement: senior/subordinated structure, reserve account, over-collateralization, excess interest on receivables

Credit Card Receivable-Backed Securities

  • Collateral is non-amortizing loans
  • Fixed or floating interest rates
  • The lockout period is the amount of time that principal repayments are reinvested in new receivables rather than returned to security holders. During this period the cash flow paid out to security holders is based only on finance charges collected and fees. The principal amortizing period is from the end of the lockout period through the end.
  • Early amortization is a type of credit enhancement. It is usually triggered when there is a sudden increase in delinquencies in the underlying loans or when excess spread, the issuer's net profit after deducting servicing fees, charge-offs and other costs, falls below an acceptable level.

Solar ABS

Solar ABS refers to Asset-Backed Securities (ABS) that are backed by solar energy assets (solar energy installations or projects).

  • The cash flows primarily come from the sale of electricity generated by the solar installations.
  • The revenue generated by solar ABS depends on factors such as the capacity of the solar installations, the electricity prices, and the long-term power purchase agreements (PPAs) with customers.
  • It also offers investors the opportunity to diversify their portfolios and invest in renewable energy assets, which can be attractive from an environmental and social standpoint.
  • They are typically sold to institutional investors.

User Contributed Comments 4

User Comment
actiger Formula for ABS:

ABS = SMM / (1 + SMM (months elapsed - 1))

SMM = ABS / (1 - ABS (months elapsed - 1))
actiger ABS = monthly prepayment rate (% of the original loan amount)

SMM = monthly prepayment rate (% of the outstanding balance)
Oksanata why Absolute prepayment speed is ABS..is it just an error?
charliedba No it's not an error. This abbreviation (which, confusingly, is the same as that used for asset-backed securities) is commonly applied to securities backed by auto loans, truck loans, RV loans and auto leases.
You need to log in first to add your comment.
I was very pleased with your notes and question bank. I especially like the mock exams because it helped to pull everything together.
Martin Rockenfeldt

Martin Rockenfeldt

My Own Flashcard

No flashcard found. Add a private flashcard for the subject.

Add

Actions