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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Net investment income increased to USD793 million, compared to USD781 million in the prior quarter primarily from favorable limited partnership performance, partially offset by prepayment speed adjustments related to residential mortgage-backed securities.
Using a 20-year time series of Wall Street dealers' forecasts of the prepayment speed of federally guaranteed mortgage-backed securities, the authors explore this question.
A robust secondary market does not currently exist in which to value the retained interest in the loans held by a company The fair value, therefore, is most commonly based upon an estimate of discounted net future cash flows that include assumptions related to future interest rates, future credit losses and future prepayment speed. Net future cash flow equals the interest and prepayment penalties paid by loan holders, less payments to other applicable parties, estimated credit losses, mortgage insurance fees, guarantee fees and trustee fees.
If interest rates rise and the prepayment speed slows, the value of the PO will fall.
The mortgage prepayment speed tends to vary inversely with market interest rates (see Hayre and Mohebbi |13~).
Investors have raised concerns that lower servicing fee requirements could transfer more risk to them, reasoning that lower fees would increase the incentive for servicers to refinance existing loans and accelerate prepayment speeds. 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.
Historically, subprime portfolios experience a high baseline prepayment speed compared with alt-A or prime collateral, says Roy Gotthold, director of mortgage securities information at LoanPerformance, San Francisco.
Weighted average prepayment speed for fixed rate Agency specified pools was 7.1% CPR for the quarter, as compared to 6.5% in the fourth quarter of 20152.
Strong national home-price appreciation and the cash-out refinance volume that it facilitated, as well as strong purchase volumes drove record prepayment speed experience and forecasts.
Net investment income increased to $789 million in the quarter, compared to $781 million in both the prior quarter and prior year primarily from favorable prepayment speed adjustments related to residential mortgage-backed securities.
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.