A revision of the collection periods for prepayments announced last week by Residential Funding Corporation (GMAC-RFC) is expected to protect investor's exposure to prepayment interest shortfalls, and is especially timely in light of the current interest-rate environment, sources said.

RFC is now including curtailments in the compensating interest calculation for all securities and is changing the collection period from the 16th of the previous month to the 15th of the current month with remittance to investors made on the 25th of the current month. In the past, if an investor is expecting a 7% coupon, for instance, and there is a 7% interest payment, the investor would not get that full coupon, so the company would take a portion of its master servicing fee income and allocate it to the coupon to make up for the shortfall.

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