Sale of an IO strip
and retention of the PO portion is an obvious example.
After discussions with investors in both assets, I concluded that servicers must replace runoff to utilize their excess capacity (or exit the industry), whereas IO strip
investors can stop investing any time they want.
This excess interest (or spread) is economically the same as an IO strip
According to Doral, the restatements are necessary to correct the accounting treatment for valuing Doral's IO Strip
The press release also stated that the restatements were made to correct the accounting treatment for the value of its IO Strip
portfolio, and the Company's preliminary estimate is that this correction will result in a decrease in the fair value of its floating rate IOs of between $400 million to $600 million as of December 31, 2004.
During 1999, the Company reduced the IO Strip
and CMSR by $75.
0 million decrease, before taxes, in the Company's IO Strip which reduced earnings and strengthened the Company's balance sheet.
In addition, the Company's IO Strip decreased by $21 million as a result of hedging activities which had no impact on current earnings.
Prepayment rate assumptions used in valuing the company's IO Strip
were revised to 27% for fixed rate loans, 33% for intermediate rate loans and 39% for ARMs.
are precisely the same instrument as excess servicing.
The underlying securities remaining in Structured Asset Securities Corporation 2007-5R consist of Lehman Mortgage Trust 2007-3 class 2A1 (rated 'CC/RR3' by Fitch), Structured Asset Securities Corporation 2004-20 class AP (rated 'A/LS1'; Outlook Stable by Fitch), Structured Asset Securities Corporation 2005-1 class AP (rated 'B/LS1; Outlook Negative by Fitch), Structured Asset Securities Corporation 2005-5 class AP (rated 'CCC/RR3' by Fitch), several Fannie Mae and Freddie Mac Principal Only bonds, and two Freddie Mac IO strips
5 million pretax impairment charge on its derivative portfolio of IO Strips