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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. Interest-Only Strip A derivative security whose cash flow derives exclusively from interest payments on various debt securities. The underlying asset of an interest-only strip is interest paid on debt securities, rather than the debt securities themselves. Many interest only strips are backed by mortgage interest, but some are also backed by Treasury securities and other debt securities. Interest-only strips are derived from bonds whose coupons' ownership is legally separated ? or "stripped" ? from the bonds themselves. How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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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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