Foreclosure costs

The severity of losses experienced on enforcement of a loan will depend on the proceeds of the property sale, foreclosure costs, carry costs, the LTV of the loan, and the priority of the charge on the property. In some cases it is possible to recover a proportion of any remaining debt from the borrower after the security has been realised, which wonld serve to rednce the loss severity. But this cannot be relied on, and so is normally ignored in any credit assessment. 

Under a guarantee agreement, the originator is able to recover an amount equal to the net realised losses on the reference pool of loans, including the costs incurred in the foreclosure and recovery process, in return for a periodic payment of a guarantee fee. This fee is calculated to make up any shortfall between the interest received on the credit-linked note collateral pool and the expenses and interest costs of the issuing SPV. Realised losses are applied in reverse sequential order to the notes, by can-... 

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