Framework on Fair Value Assessment of Post-NIM Residual

Abstract

Assessing the fair value of the post-NIM residual of a subprime NIM securitization deal is not a straightforward task. It involves analyzing the capital structure and cash flow mechanism of the NIM securitization deal. This article walks readers through the NIM securitization structure and post-NIM residual (PNR) thus generated using an actual deal as an example. Then it illustrates the detailed components of cash flows that drive the fair value of PNRs. The input parameters for PNR fair value derivation are examined through the EITF 02-3 observability test. In the end, the article demonstrates the fair value calculation based on an actual post-NIM residual deal.