Burnout

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Burnout

Depletion of a tax shelter's benefits. In the context of mortgage backed securities it refers to the percentage of the pool that has prepaid their mortgage.

Burnout

In a mortgage-backed security, the percentage of mortgages underlying the security that were not re-financed following a drop in interest rates. Historically, a mortgage that is not re-financed is less likely to re-finance at the next drop in interest rates. As a result, potential investors in mortgage-backed securities often look for a high burnout rate because it reduces prepayment risk, or the risk that investors will be deprived of future interest payments because too many mortgages are prepaid.
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