excess spread

Surplus income from an asset-based security (such as a bond). It is the difference between the interest received by the security-issuer on the mortgages sold and the interest paid to the security holders. For example, alt-a and subprime mortgages are sold at interest rates higher than those for prime mortgages and therefore generate extra cash flow for the mortgagee. This excess is usually deposited into a reserve account and serves as a first line of protection for the security holders against losses. It is a type of internal credit enhancement. also called excess interest cash flow.

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