Yield Maintenance Questions

[Scott Ratner]

I've been thinking why a sponsor would choose yield maintenance over step down for agency debt. The note is for 10 yrs and the life of the investment is 5-7 yrs. Why, besides a lower interest rate, would the sponsor choose yield maintenance? Why not go for step down prepay or floater with a rate cap? I heard somebody say that if interest rates are higher when you sell than your current interest rate, there isn't a penalty because the lender can lend that note out at a higher interest rate. Is that true? If not, how could the sponsor get out of such a large prepayment penalty? They'd have to have a new buyer assume the loan but that wouldn't work for the new buyer. They'd have to get a supplemental to make up for the low LTV. I'd love to hear any comments. Thanks