CMA Final · Strategic Financial Management · Securitization
Sagar Housing Finance sells a mortgage pool of Rs 200 crore to an SPV at par. The pool carries interest of 11% p.a., and the pass-through certificates pay investors 9.5% p.a. The servicer fee is 0.5% p.a. of the outstanding principal. Considering only the first year on the full Rs 200 crore, what is the excess spread available as credit enhancement?
Excess spread is pool interest minus investor coupon minus servicing fee: 11% - 9.5% - 0.5% = 1%. Applied to Rs 200 crore, it is Rs 2.0 crore, which is available to absorb losses as credit enhancement.
- ARs 2.0 croreCorrect
- BRs 3.0 crore
- CRs 5.0 crore
- DRs 1.0 crore
Explanation
Excess spread rate = 11% - 9.5% - 0.5% = 1.0%. On Rs 200 crore this is Rs 2.0 crore. Rs 3.0 crore ignores the servicer fee (1.5%). Rs 1.0 crore results from using 0.5%.
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