Manage Money and Income Sucessfully

Soft delinquency triggers dynamically link credit enhancement to deal performance. There are two types of soft delinquency triggers. The first is asoft trigger based on the credit enhancement of the senior certificates. This trigger specifies a target value for delinquencies as a percentage of the senior certificate’s enhancement. This type of trigger mostly protects the senior bondholders. However, as the senior classes pay down, the credit enhancement to those classes increases and the trigger becomes mechanically weaker, to the point that it may no longer be effective.  Under the higher prepayment scenarios, the delinquency threshold increases faster than under slower prepayment scenarios.

The second type of soft delinquency trigger is based on the credit enhancement of the most senior outstanding bond. This kind of delinquency trigger will not step down if serious delinquencies exceed a target level that is tied to the credit enhancement available for the most senior outstanding class. The structure of this trigger partly addresses the weakness of the delinquency trigger discussed previously.