About Factoring

Eagle Accounting stores all MBS/ABS factors used for processing in the Corporate Action table. You can input factors for processing using the Create Final Factor panel in Reference Data Center. The system stores factor history records for each security, based on the security asset identifier. The Add Pool Factor panels, in contrast, are used solely for reporting and reference information, and do not base any processing against values stored in that table.

For detailed information about how to manually input factors and use Global Processes to process factors, see Manage Factor Corporate Actions.

About Factors

When you use factors, be aware that:

• The Global and Retrospective Amortization processes only use factor values that have a corporate action status of Released.

• When processing an MBS/ABS trade, Eagle Accounting, by default, enters the most appropriate Factor and Factor Date (from the Corporate Action table) in the trade panels. If no factors are found, Eagle Accounting uses a default factor of 1. Regardless of whether a factor is found, you can override the default factor.

• The Trade Date of the paydown transaction is equal to the Effective Date of the factor. Settlement Date is calculated from the Effective Date of the factor, plus the number of Delay that appear in the security master record.

• Trade Date of the payup transaction is equal to the Effective Date of the factor. The Cost Object Settlement Date is equal to the Effective Date of the factor, to properly facilitate the accrual process; on the Cash Object, the Settlement Date is calculated from the Effective Date of the factor, plus the number of Delay Days that appear in the security master record, to offset the receivable.

• Income and principal are received as two different receivables.

• Paydown factors and gain/loss are applied, and calculate at the lot level.

• Eagle Accounting processes all factor payments based on a pro-ration approach. Pro-ration is the process of taking the percentage of par being reduced, and applying that percentage to the amortized cost, to calculate the gain or loss caused by a paydown.

• IO Paydown transactions are for zero cash.

• For Eagle Accounting to calculate the paydown amount, a factor must also exist in Eagle Accounting for the prior month.

• When earnings are rolled backed past a factor date, Eagle Accounting automatically cancels that factor. You have to manually re-trigger the factor, via factor processing, to replay the corporate action.

Process a Paydown Factor Example

This example uses security 31296TG32. The panel information for this security follows.

Trade Details

You purchase Security 31296GT32 in Portfolio MBSDEMO2, with:

• Trade Date of 20040105

• Settle Date of 20040106

• Par of 1,000,000.00

• Price of 90.00

The following activity occurs:

1. Eagle Accounting amortizes 241.86 (CY2) for the month of January.

2. The factor for February 1 is applied at a rate of .90.

3. You run Factor processing, using the Factor Processing panel in the Global Process workspace.

The following figure shows the Factor Processing panel.

When you run the factor process, Eagle Accounting creates a Principal Receivable of 100,000.00. The Principal Receivable is created by the following formula:

Current Face - (Original Face * Current Factor) = Paydown Amount

Eagle Accounting creates the principal cost reduction by applying the percentage paydown against the amortized cost. In this example, Current Cost is 900,0000.00 and Amortization Life-to-Date is 241.86. Eagle Accounting applies 10% (paydown amount/original face) to both the cost and amortization life-to-date, to produce a cost reduction of 90,000.00 and 24.19 of close amortization.

Gain/Loss is then Calculated as 100,000.00 - 90,024.19 = 9,975.81

Eagle Accounting posts the following general ledger entries, if:

• The entity is set up to recognize the gain/loss caused by a paydown as gain/loss; that is, Gain/Loss on Paydowns is set to Yes, and

• The gain/loss is posted to Income; that is, Paydown Gain/Loss Account is set to Income.

Eagle Accounting posts the following general ledger entries, if:

• The entity is set up to recognize the gain/loss caused by a paydown as gain/loss; that is, Gain/Loss on Paydowns is set to Yes, and

• The gain/loss is posted to Capital; that is, Paydown Gain/Loss Account is set to Capital.

Eagle Accounting posts the following general ledger entries, if:

• You recognize gain/loss on paydowns as Amortization.

The 9,975.81 Gain created from the paydown displays in the Income Archive and general ledger when earnings are run.

Process a Payup Example

This example demonstrates payup processing in Eagle Accounting, using the following security information.

Trade Details

You purchase the security PAYUP DEMO with the following attributes:

The following occurs:

1. The security is then accrued for the period, producing a Receivable of 33,188.76.
   The factor process is run for 19950515; the Factor for 19950515 is now 2.007920081. For a list of field definitions for the Factor Processing panel, see Factor Processing Panel Options.

2. Eagle Accounting creates a new lot of 33,188.76 Par versus a Cost of 33,188.76. The calculation of the payup follows:

(Original face * Current factor) - Current Face
or,
(2,000,000.00 * 2.007920081) - 3982651.40 = 33.188.76.

After the new lot is created, Eagle Accounting automatically processes an open adjustment transaction, to allocate a portion of the original face from the parent lot, to the new lot created from the payup transaction. Eagle Accounting allocates the original face by dividing the new lot by the current factor:

(33,188.76 / 2.0079200810) = 16,528.92479 of Original Face is Allocated From Parent to new Lot.

By allocating a portion of the original face, each lot is now in sync based upon the current factor. Eagle Accounting allocates the original face to new lots caused by payup because this allocation facilitates disposition processing. Each lot for disposition processing must have the original face.