Excess spread vs excess servicing (from Fabozzi)

[shanlane]

Hello,

Do these two terms mean the same thing?

If not what is the difference?

Also, what does it mean when it says base servicing is money the "must be held by the servicer of the loan"? I thought this was at least in part considered a payment to the servicer for his services. Is this not correct?

Thanks!
Shannon

 

[ibrahim-1987]

hi shanon,
1. no they r not the same:
ES: is the difference between pool's WAC and coupon paid on the securities issuied ( WAC - coupon ). " more general term "
E Ser: is the residual from pool's WAC after deducting ( WAC- Guarantee + base servicing + coupon).

2. " servicing money must be held by the servicer of the loan " :
servicing money: is the payments collected from borrowers, which is distributed through:
1. tax & insurance payments.
2. servicing fee.
3. the residual is paid to SPE to be paid later to invetors.

 

[sl]

hi shanon,
1. no they r not the same:
ES: is the difference between pool's WAC and coupon paid on the securities issuied ( WAC - coupon ). " more general term "
E Ser: is the residual from pool's WAC after deducting ( WAC- Guarantee + base servicing + coupon).

2. " servicing money must be held by the servicer of the loan " :
servicing money: is the payments collected from borrowers, which is distributed through:
1. tax & insurance payments.
2. servicing fee.
3. the residual is paid to SPE to be paid later to invetors.

Shouldn't it be, (WAC- Guarantee - base servicing - coupon)?

 

[ibrahim-1987]

Yes y r right, I'm sorry I forgot the parenthesis
I meant WAC - ( g+s+c )
Thank y

 

[shanlane]

That is just net excess spread, isnt it?

Also, one is for private label and thother for agency.

Net excess spread is just WAC - deal coup - senior expenses.

Excess servicing is WAC - deal coup - g fees - base servicing, so its kind of like base servicing + excess servicing is equal mathematically to excess spread.

 

[ibrahim-1987]

100%

 

[shanlane]

I guess what I really meant was: what does excess servicing do? Excess spread is credit enhancement, since the agency MBS are already guaranteed, BUT what doe the Excess servicing do?

ThankS!

 

[ibrahim-1987]

Excess servicing is only with fixed securities, so the nature of coupons in the pool play this role in the creation of excess servicing existence.