Which of the following describes the waterfall typically used for mortgages pre-crisis?
A) A distribution of cash flows to tranches with priority given to tranche with the highest rating
B) A distribution of cash flows to tranches in proportion to their outstanding principals
C) A distribution of losses to tranches so that tranches bear losses in proportion to their outstanding principals
D) None of the above

Question

Quizplus · Accepted Answer

The effect of the waterfall was usually that repayments went first to the most senior (highest rated)tranche,then to the next-most-senior tranche,and so on

Which of the Following Describes the Waterfall Typically Used for Mortgages