ABS Structures A Primer on Performance Metrics and Test Measures

ABS Structures A Primer on Performance Metrics and Test Measures  

This section is an introduction to the performance measures on the underlying collateral of the ABS and MBS product. 

ABS performance is largely dependent on consumer credit performance, and so, typical ABS structures include trigger mechanisms (to accelerate amortization) and reserve accounts (to cover interest shortfalls) to safeguard against poor portfolio performance. Though there is no basic difference in terms of the essential structure between CDO and ABS/MBS, some differences arise by the very nature of the collateral and the motives of the issuer. Interestingly, whereas a CDO portfolio will have 100—200 loans, for example, ABS portfolios will often have 

We now discuss briefly some prominent asset classes. 

Auto loan pools were some of the earliest to be securitized in the ABS market and still remain a major segment of the U.S. market. Investors have been attracted to the high asset quality involved and fact that that the vehicle offers an easily sellable, tangible asset in the case of obligor default. In addition, since a car is seen as an essential purchase and a short loan exposure (three to flve years) provides a disincentive to finance, no real prepayment culture exists. Prepayment speed is extremely stable and losses are relatively low, particularly in the prime sector. 

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