Page 131 Book 5: Loan level protection: prepayment lockout, defeasance, prepayment penalty points, yield maintenance charges CMBS level: “CMBS loan pools are segregated into tranches with a specific sequence of repayment. Those tranches with a higher priority for prepayment or collateral position will have a higher credit rating than lower priority tranches because loan defaults will first affect the lower tranches.” it seems that the 2 are not protecting against the same thing. loan level is protecting against early payments (contraction risk) but cmbs level is protecting against defaults/credit risk. is that right?
“it seems that the 2 are not protecting against the same thing. loan level is protecting against early payments (contraction risk) but cmbs level is protecting against defaults/credit risk. is that right?” Exactly.
That 2nd paragraph is referring to a senior-subordinated structure I believe.