Targeted Amortization Class Bond
A collateralized mortgage obligation that seeks to protect investors from prepayment risk. Like PACs, a targeted amortization class bond does this by setting a schedule of payments; if prepayments of the underlying mortgages exceed a certain rate, the life of the bond is shortened. Unlike PACs, however, if prepayments fall below a certain rate, the life of the tranche is not extended. Targeted amortization class bonds help protect investors in case the holders of the underlying mortgages do not pay their mortgages back as expected.
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Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.