S&P - Public Finance Criteria (2007). - The Global Clearinghouse

HousingAAADepending on the structure of each transaction,other cash flow scenarios may be needed. Such runsmay include, but are not limited to:Rapid prepayment scenario. All ‘AAA’ ratedissues should include this stress run. Cash flowsshould be prepared at a prepayment speed sufficientto retire all bonds within two years after origination;however, depending on the mortgage loaninterest rate, the issuer, and whether or not thebonds are part of a parity program, this scenariomay be run at slower prepayment speeds that retireTable 2 Loss Coverage Criteria (%)Large StateLTV 100 97 95 90 80FF 42 38 35 17 12FC 22 22 22 22 22MVD 37 37 37 37 37AALTV 100 97 95 90 80FF 32 29 27 13 9FC 22 22 22 22 22MVD 34 34 34 34 34ALTV 100 97 95 90 80FF 26 23 21 11 7FC 22 22 22 22 22MVD 29 29 29 29 29BBBLTV 100 97 95 90 80FF 19 18 16 8 5FC 22 22 22 22 22MVD 25 25 25 25 25AAASmall State/Large CountyLTV 100 97 95 90 80FF 61 58 53 26 18FC 22 22 22 22 22MVD 37 37 37 37 37AALTV 100 97 95 90 80FF 47 44 40 20 13FC 22 22 22 22 22MVD 34 34 34 34 34all bonds within a greater number of years afterorigination, as shown below:Depending on an issuer’s prepayment history,Standard & Poor’s may request a faster prepaymentscenario for ‘AA’ category indentures. This scenariowould include an initial prepayment rate of 1000%PSA for the first three years following loan origination,and then the three-year average life prepaymentspeed thereafter.PAC stress scenario. If the bond structureincludes a planned amortization class (PAC) bond,this stress run may be needed if the net interest rateon the PAC bond, factoring in any premium, isamong the lowest of all bonds in the structure.Cash flows should be run at the PSA prepaymentpercentage that the PAC bond is structured at,which is the level at which all prepayments first gotoward calling the PAC bond (typically around100% PSA), until the PAC bond is called in full,and then at 0% prepayments until bond maturity.Super-sinker stress scenario. If the bond structureincludes a super-sinker bond, typically seen in olderseries of bonds within a parity indenture, this stressrun should be included in consolidated cash flowsfor each series of bonds having a super-sinker bond.Cash flows should be run at the three-year averagelife of the loans prepayment rate until the supersinkerpriority term bond is called in full, and thenat 0% prepayments until bond maturity.Liquidity stress scenario. If serial bonds are presentin the structure when either a PAC or supersinkerbond is present and are not called on a prorata basis with the PAC/super-sinker, a run shouldbe submitted whereby the prepayments (run at thesame speed as the PAC/super-sinker run above) shutoff at the point of greatest decline in prepaymentmoneys received and remain at 0% until bondmaturity.CAB-remainder stress scenario. The cash flowsfor structures that include a CAB (capital appreciationbond) that is call-protected should include aCAB-remainder projection where cash flows are runat the three-year average life prepayment rate untilall current interest and other non-call-protectedbonds are called in full, and then at 0% prepaymentsuntil bond maturity.Multiple mortgage rate stress scenario. The cashflows for issues that include more than one mortgagerate may need to be run reflecting differentprepayment speeds for each mortgage rate. Pleaserefer to Chart 3 & 4 at the end of this article forthe information needed to perform this run.Forty-year mortgage scenario. Loans with longerloan terms usually generate less revenue on a semiannualbasis than 30-year loans. If 30-year and 40-year loans are in the same indenture, Standard &Poor’s may request an additional cash flow with the236 Standard & Poor’s Public Finance Criteria 2007