Which of the following describes the waterfall typically used for mortgages pre-crisis?

A. A distribution of cash flows to tranches with priority given to tranche with the highest rating
B. A distribution of cash flows to tranches in proportion to their outstanding principals
C. A distribution of losses to tranches so that tranches bear losses in proportion to their outstanding principals
D. None of the above

A

The effect of the waterfall was usually that repayments went first to the most senior (highest rated) tranche, then to the next-most-senior tranche, and so on