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Interest-only strip |
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Interest-only strip (IO) A security based solely on the interest payments from a pool of mortgages, Treasury bonds, or other bonds. Once the principal on the mortgages or bonds has been repaid, interest payments stop, and the value of the IO falls to zero. |
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On Monday, PacificAmerica announced that Fremont changed the terms of its agreement, making it possible to reduce the purchase price to $6 a share in cash if certain standards related to the sale of interest-only strip receivables were met by the time the deal closes in the first quarter of next year. Some of the interest retained by the seller may represent a fee for normal loan servicing and some may represent an excess servicing receivable, such as the right to receive cash flows that exceed normal servicing fees, which is equivalent to an interest-only strip on the portion of the loan sold. In the third quarter of 2004, there were gains of $882,000 from two sales of interest-only strip securities. |
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Interest-only strip
