Legal Structure of Net Interest Margin Securities

Abstract

Net interest margin (NIM) transactions offer sponsors of residential mortgage-backed securitization (RMBS) transactions a viable way to realize present value from economic residual interests through the securitization of excess cash flow that remains after the interest entitlements on the underlying deal have been satisfied. When structuring a NIM, one must be cognizant of the features of the underlying RMBS transaction, its risks, and the manner in which such risks can be addressed. In particular, the possibility of principal prepayments and losses on the mortgage loans must be accommodated, and the possibility of the NIM transaction itself occurring is best addressed at the time of structuring the underlying RMBS transaction.