For ABS paydowns that have proceeds and principal loss factors in the same coupon cycle, the principal loss factors are applied first , followed by the paydown cash received. Apply loss factor quantity as a straight par reduction to the extent that there is sufficient unamortized discount to absorb the quantity without reducing any deferred market discount or original cost.
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Unamortized Market Discount (Mkt Dis) is not a stored value in Eagle but is displayed as a balance in the example below for illustrative purposes.
Examples
Example 4 - Loss factor is less than the amount of unamortized discount (excluding deferred amortization)
Apply full unit reduction as a decrease in quantity and do not impact the remaining amount of deferred market discount.
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Prior Cost Reduction | Prior Def Mkt Discount Reduction |
0 | 0 |
Example 5 – Loss factor is greater than the amount of unamortized discount but less than the total of unamortized discount and deferred market discount
Apply loss factor as a reduction of quantity and reduce deferred market discount for the amount of loss factor that is greater than the unamortized discount.
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Prior Cost Reduction | Prior Def Mkt Discount Reduction |
0 | 12,000 |
Example 6 –Loss factor is greater than the total unamortized discount and deferred market discount
Apply loss factor as a reduction of quantity and reduce deferred market discount to zero. The remaining loss factor results in a realized capital loss.
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Prior Cost Reduction | Prior Def Mkt Discount Reduction |
5,000 | 15,000 |
Loss Recovery - Continuation of example 6
Recovery factor reverses prior losses, then increases the deferred market discount by the remaining recovery amount.
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