Servicing Liability

[rabsawaya]

If you are securitizing a Mortgage with a 65bps as a premium and you have a 7bps to keep on servicing the mortgage. Let's say that the difference between the FV of the Mortgage and the FV of the Mortgage with a premium is 13M. when calculating the Servicing liability why do you take the 13M divide it by 65bps and then multiply it by 7bps?

[factor-fiction]

Give us a clue please- what does bps mean. Does FV mean future value/final value or what?
Sounds like SL is the service cost (7) as a proportion of the premium (65) and that is then multiplied by the increase in FV due to the premium.
Don't know what it's all about though.

[kujawski]

cor this is an easy one,

of course, if the difference is say 17.8 TG or maybe upto a limit of 19TG then obviously if you take a percentage of
(below the stated BHJ) then the amount should equal out to be beyond what was predicted and infact calculated using IGP.

[factor-fiction]

Provided the mortgage is securitised on an exponential rather than binomial basis then the eigenvalue of the derivative will always equate to the sum of the squares of the SL and FV which in turn is inversely proportional to the square root of -1bps.