270 6.7 Appendices Appendix I. Alignment of returns of retainer and investors: an example Te xoa mi l lpulset riant eF i tghuer eaIl i go nf mr eet nu rt nbs eftowr etehne rt he tea iinnevre satnodr tahnedi nrveet as ti no re ra, l owneg sthhoe wt o taanl l u o s s i s ng di a st h ri y b p u o t t i h o e n ti f c o a r l s d e if c f u e r r i e t n iz t at r i e o t n e , nt b i u o t n t m he et o h v o e d r s a . ll T c h o e nc r l e u s s u io lt n s s a a r l e so si h m o u ld lat f e o d r other specifications and can be generalized. We consider the retainer to be the originator and we assume that two types of stakeholders (originator and investor) hold the entire assets. The loan pool is sufficiently diversified to assume trha taet oi df i oz es yr on carta 2t i cp roiisnkt si si nn et igml i ge i b( tl =e .0I nw ho ue nr et hx ae mr eptleen, twi oenaml s oe t ahsosdu mi s ec ha orsi es kn- farnede investments are made; t=1 when losses are realized and payoffs are distributed). Lr eotsesnetsi or ne f oe rf ttho et hr ee ttaoi tnael rl oi ss seeqsu(ai l. et.o, d5e%f a uo lft trhaet et ot ti ma l esse cl ousrsi tai zt adtei of anu. l t ) a n d t h e r i s k In this example: FLT: the retainer holds 5%, all invested in the equity tranche; FLE: the retainer sells the papers at a value of 95% and the 5% discount is refunded tt oh eh irme t awi nh ee rn ht hoel ddsi s5c%o uonft eeda csha l oe fatmh eo ut rnat ni sc hneost; eOnBt iSr:e tl yh ea brseot ar bi needr bcyh ol ossesse sa ; tVr Eu Sl y: randomly selected portion of 5% of the pool of loans that is kept on his books. The risk profile of the retained loans is assumed to be identical to the risk profile oi nf ctohme el ooann st hsee cl ou ar int si z iesd aas ns ud mt he ud s t ot o bt ael al ot s1s. e9s%a r( emaast sc uh mi n eg dt ht oe wb ee iegqhut ea dl . Ianvteerraegset return of the securitization tranches).
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