Depending on the structure of each transaction,
other cash flow scenarios may be needed. Such runs
may include, but are not limited to:
Rapid prepayment scenario. All ‘AAA’ rated
issues should include this stress run. Cash flows
should be prepared at a prepayment speed sufficient
to retire all bonds within two years after origina-
tion; however, depending on the mortgage loan
interest rate, the issuer, and whether or not the
bonds are part of a parity program, this scenario
may be run at slower prepayment speeds that retireall bonds within a greater number of years after
origination, as shown below:
Depending on an issuer’s prepayment history,
Standard & Poor’s may request a faster prepayment
scenario for ‘AA’ category indentures. This scenario
would include an initial prepayment rate of 1000%
PSA for the first three years following loan origina-
tion, and then the three-year average life prepay-
ment speed thereafter.
PAC stress scenario. If the bond structure
includes a planned amortization class (PAC) bond,
this stress run may be needed if the net interest rate
on the PAC bond, factoring in any premium, is
among the lowest of all bonds in the structure.
Cash flows should be run at the PSA prepayment
percentage that the PAC bond is structured at,
which is the level at which all prepayments first go
toward calling the PAC bond (typically around
100% PSA), until the PAC bond is called in full,
and then at 0% prepayments until bond maturity.
Super-sinker stress scenario. If the bond structure
includes a super-sinker bond, typically seen in older
series of bonds within a parity indenture, this stress
run should be included in consolidated cash flows
for each series of bonds having a super-sinker bond.
Cash flows should be run at the three-year average
life of the loans prepayment rate until the super-
sinker priority term bond is called in full, and then
at 0% prepayments until bond maturity.
Liquidity stress scenario. If serial bonds are pres-
ent in the structure when either a PAC or super-
sinker bond is present and are not called on a pro
rata basis with the PAC/super-sinker, a run should
be submitted whereby the prepayments (run at the
same speed as the PAC/super-sinker run above) shut
off at the point of greatest decline in prepayment
moneys received and remain at 0% until bond
maturity.
CAB-remainder stress scenario. The cash flows
for structures that include a CAB (capital apprecia-
tion bond) that is call-protected should include a
CAB-remainder projection where cash flows are run
at the three-year average life prepayment rate until
all current interest and other non-call-protected
bonds are called in full, and then at 0% prepay-
ments until bond maturity.
Multiple mortgage rate stress scenario. The cash
flows for issues that include more than one mort-
gage rate may need to be run reflecting different
prepayment speeds for each mortgage rate. Please
refer to Chart 3 & 4 at the end of this article for
the information needed to perform this run.
Forty-year mortgage scenario. Loans with longer
loan terms usually generate less revenue on a semi-
annual basis than 30-year loans. If 30-year and 40-
year loans are in the same indenture, Standard &
Poor’s may request an additional cash flow with theHousing236 Standard & Poor’s Public Finance Criteria 2007Large State
AAA
LTV 100 97 95 90 80
FF 42 38 35 17 12
FC 22 22 22 22 22
MVD 37 37 37 37 37
AA
LTV 100 97 95 90 80
FF 32 29 27 13 9
FC 22 22 22 22 22
MVD 34 34 34 34 34
A
LTV 100 97 95 90 80
FF 26 23 21 11 7
FC 22 22 22 22 22
MVD 29 29 29 29 29
BBB
LTV 100 97 95 90 80
FF 19 18 16 8 5
FC 22 22 22 22 22
MVD 25 25 25 25 25
Small State/Large County
AAA
LTV 100 97 95 90 80
FF 61 58 53 26 18
FC 22 22 22 22 22
MVD 37 37 37 37 37
AA
LTV 100 97 95 90 80
FF 47 44 40 20 13
FC 22 22 22 22 22
MVD 34 34 34 34 34
Table 2Loss Coverage Criteria (%)