VADM or Very Accurately Defined Maturity Bonds
- VADM structures were created to limit extension risk if rates rise and prepayments slow down.
- In a VADM bond, payments are scheduled within a prepayment band; however, the range includes 0% PSA.
- There generally is no extension risk and VADMs mature on their stated maturity date.
- VADM structures are found only in CMOs with Z bonds. This is because all of their cash flows come from the period of lockout from the Z bond while the interest is creating accretion.
- If the Z bond is large enough to support a VADM class, then one will exist.
- A VADM bond comes before the Z bond in the priority structure, but after the senior bonds and PACs in the cash flow waterfall.
Was this article helpful?
There are many misconceptions about credit scores out there. There are customers who believe that they don’t have a credit score and many customers who think that their credit scores just don’t really matter. These sorts of misconceptions can hurt your chances at some jobs, at good interest rates, and even your chances of getting some apartments.
Get My Free Ebook