Prepayment speed

Prepayment speed

Also called speed, the estimated rate at which mortgagors pay off their loans ahead of schedule, critical in assessing the value of mortgage pass-through securities.

Prepayment Speed

In mortgage-backed securities, the estimated rate at which mortgage borrowers will pay off the mortgages that underlie an MBS. The equivalent of the coupon on a mortgage-backed security is a percentage of the interest and principal paid on the mortgages backing the security. A risk associated with mortgage-backed securities is that too many homeowners will pay off their mortgages with too much prepayment speed, depriving the holders of the MBS from future coupon payments.
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In addition, tests on live portfolios show significant improvement in the accuracy of prepayment speed estimates.
Under all prepayment speed scenarios, the cash flows demonstrate that the assets in the indenture are sufficient to make debt service payments throughout the term of the bonds.
When interest rates are falling, homeowners tend to pay off their mortgages early (usually by refinancing at a lower rate), causing the prepayment speed to be faster than expected.
But equity researchers from several large brokerages have been studying prepayment speed behavior for several years, and my reading of their findings thus far indicates there is no correlation between prepayment speeds and the amount of servicing fee on a loan.
Marketswitch's technology, which has been licensed exclusively to OptiFI, merges household-level behavioral analysis with financial security pricing technology to unlock the value of understanding the effect of unique customer attributes on prepayment speed, according to Fair, Isaac and Marketswitch.
The ratio of the prepayment speed for each state cluster to the national average for its coupon/origination cohort was calculated.
The aggregate 30 year Fannie Mae prepayment speed rose 34% to 23.
The average prepayment speed for the state of California stood at 10.
Changes to the prepayment speed estimates are applied to the level-yield calculations as if the revised estimates had been in place since the origination of the loans and inception of the securitization debt.
The prepayment speed on MFA's MBS portfolio averaged 32% Constant Prepayment Rate ("CPR") during the second quarter of 2004.
As all mortgage servicers know, it does not matter what single prepayment speed is used, but how the prepayment speeds are expected to change as interest rates change.
As a result, the class A-2L notes are highly sensitive to the prepayment speed of the underlying collateral, whereby the longer the class A-2L notes remain outstanding, the more principal proceeds can be used to pay class B interest before flowing through to pay the A-2L principal.