Suppose you have the following information for an auto loan ABS. Using the information in the bulleted list below, find a. The weighted average life for the pool, Tranche A and Tranche B b. Using a B rate =5%, what is the value of the excess servicing?
• Total loan pool = $2,000,000
• Term = 4 years
• (Weighted average) Loan rate = 3.5%; market yield =3.5%
• Servicing cost =1.50%
• PD=20%; LGD=40%; $40,000 buffer over expected loss for B tranche
1. You need to determine the size of Tranche B (Hint: PDxLGDx Loan pool + buffer)
2. Tranche A = Total Loan Pool – Tranche B
• A tranche rate =1.00%