A securitization transaction typically requires some form of credit enhancement in order to achieve an investment grade rating for one or several note classes. One form of credit enhancement is overcollateralization, where the face value of the underlying collateral pool is higher than the face value of the notes issued. Therefore, when overcollateralization is applied as a form of credit enhancement, validation rule v11873_m is likely not met.

In contrast, the total amount of securitized exposures can also be lower than the amount of notes issued. Typically in RMBS, issuers will use receipts of principal and interest from securitized mortgage loans to make payments of principal and interest due on outstanding notes, and/or to purchase new mortgage loans as substitution. Where the mortgage receivables of principal and interest are usually received monthly, redemption on the notes may be done in arrear on a quarterly notes payment date. In the meanwhile, mortgage receivables are accumulated on a bank account for the collection of these mortgage receivables. As these collection bank accounts are not included in the total amount of securitized exposures reported in c0140, it can also be that the total amount of securitized exposures is periodically lower than the outstanding amount of notes.

As the accounting value of the notes issued can be higher as well as lower than the value of the securitized exposures (underlying collateral pool), we believe validation rule v11873_m should be deactivated.

In our opinion this check is similar to check v7371_m from 2022, which was deactivated on 12-12-2022. And to to check v7349 from 2020, which was deactivated on 10-12-2020.

We believe v11873_m is incorrect as it assumes that total securitized exposures (C 14.00, c0140) cannot be smaller or equal to the sum of outstanding notes (on balance-sheet items senior, mezzanine, and first loss as per C 14.00: [c0230, c0240, c0250].