Scheduled balance arrears methodology (SBA) is a method of calculating arrears on a pool of loans.
- SBA is typically used in securitisations of loans, such as mortgage-backed securities (MBS) and asset-backed securities (ABS).
SBA calculates arrears as the difference between the scheduled loan balance and the actual loan balance.
For example, if a loan has a scheduled loan balance of $100,000 and an actual loan balance of $90,000, the arrears would be $10,000.
SBA is a simple and straightforward method of calculating arrears.
However, SBA can be misleading in some cases.
For example, if a loan has a large balloon payment due in the future, the SBA may underestimate the amount of arrears on the loan.
Here are some applications of SBA in securitisation:
- To determine the risk: SBA is used to determine the risk of a securitisation. The risk of a securitisation is affected by the amount of arrears on the underlying loans.
- To price the securities: SBA is used to price the securities issued by a securitisation. The price of the securities is affected by the risk of the securitisation.
Overall, SBA is a useful tool for calculating arrears on a pool of loans. However, it is important to be aware of the limitations of SBA before using it to assess the risk of a securitisation.