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

HousingCash flow assumptionsIn submitting cash flows to Standard & Poor’s, thefollowing assumptions should be made:Lag assumption. A 30-day lag (in addition tonormal arrearage) in receipt of mortgage paymentson newly originated and existing loans should bereflected in the cash flows for structures rated ‘AA’or below. Standard & Poor’s may require a laggreater than 30 days depending on historical delinquencylevels; this will be considered on a case-bycasebasis. Structures rated ‘AAA’ should reflect a60-day lag. Standard & Poor’s defines a lag as adelay in payment that is in addition to the normalarrearage (the time period encompassed from thedate of mortgage origination until the first scheduledmortgage payment date.) For example, if amortgage is originated on September 1, the firstscheduled mortgage payment would be due onOctober 1. Thus, cash flows incorporating a 30-daylag would not reflect receipt of this payment by thebond trustee until November 1.Worst-case draw schedule. Origination of themortgage portfolio should be reflected under theleast desirable placement schedule from an incomegeneratingperspective (i.e., last day draw if the mortgagerate less the servicing fee exceeds the acquisitionfund rate; first month draw if vice versa).FeesAll fees, including trustee, servicers, rebate analyst,and any other parties paid under the financing documents,should be shown in the cash flows inTable 4 Prepayment Speeds (% PSA)Mortgage loansrate (%) AAA AA A BBB11.00 900 866 853 84410.50 890 856 843 83410.00 870 836 823 81409.50 840 806 793 78409.00 800 766 753 74408.50 750 716 703 69408.00 650 616 603 59407.50 500 466 453 44407.00 350 316 303 29406.50 270 236 223 21406.00 230 196 183 17405.50 210 176 163 15405.00 195 161 148 13904.50 185 151 138 12904.00 175 141 128 119amounts consistent with the financing documents.All fees should be capped, stated as a percentage ofthe mortgages or bonds outstanding, and, preferably,subordinate to debt service. Minimum trusteefees should be no less than three basis points, withan additional one basis point provided for therebate analyst fee. Any fixed fees should be ratablyreduced in the event of a prepayment under themortgage loan, or stress runs may be needed.Investment earningsIn the absence of an investment agreement,Standard & Poor’s current reinvestment rateassumptions should be used.Debt-repayment scheduleCash flow runs should demonstrate that there aresufficient assets and revenues to pay debt serviceand expenses under a zero prepayment scenario. Insome instances, Standard & Poor’s will accept cashflows modeled with some level of prepayments.Prepayment penaltiesNo prepayment penalties should be assumed incash flows, as payment of these penalties may notbe enforceable under state law.RebateAll rebate fees and payments to the federal governmentfor rebate should be demonstrated.SurplusesAll projections should assume the availability ofsome surpluses (defined as revenues in excess ofdebt service plus expenses) for prior redemption ofoutstanding bonds. A minimum carry forward balanceeach period of at least $10,000 should bemaintained. If it is the practice of the agency torelease excess monies from the indenture at a certainasset/liability parity position or some otherpoint in the issue, cash flows should accuratelyreflect this release. Funds provided for loss coverageshould not be counted as an asset.RecyclingIndentures that provide for the recycling of mortgageprepayments and surpluses may require additionalcash flow runs. Documents should specifythat new (recycled) mortgage loans are to be madeonly at the same rate and existing term as theoriginal (prepaid) loan and such prepayment proceedsare to be held no longer than six monthsbefore being used to redeem bonds. Recycling canbe done with terms other than the same mortgagerate, term of the loan, or with different holdingperiods of prepayment proceeds as long as the specificterms as outlined in the trust indenture andmortgage documents are properly modeled in thecash flows.240 Standard & Poor’s Public Finance Criteria 2007