Pool factor

Pool factor

In finance, a pool factor is a number expressed as a factor of one that is used to indicate the remaining principal balance of a note. Pool factors are only used to describe specific classes of securities, namely pooled ABSs and MBSs whose component payments are returned to investors on a monthly basis [http://www.investopedia.com/terms/p/poolfactor.asp Investopedia:Pool Factor] . Pool factors are published monthly for Ginnie Mae, Fannie Mae, and Freddie Mac mortgage-backed securities [http://www.forbes.com/tools/glossary/search.jhtml?term=pool_factor Forbes Financial Glossary: Pool Factor] .

To calculate the pool factor,
:{Outstanding Principal Balanceover Original Principal Balance} = {Pool Factor}
For example, a pool factor of 0.523 indicates that for each note of $10,000, $4,770 of principal has been repaid.

Usage

Asset backed securities and MBSs typically contain issue terms that specify a method through which redeeming principal is shared among investors. When redemption is done pro-rata, a pool factor is useful to investors in cases of early repayment. Early repayment reduces the amount of collateral available for an issue, and therefore some of the outstanding principal is returned to investors as stated in the issue terms. In this case, the pool factor is used to indicate how the remaining outstanding principal is adequately securitized [Choudhry, Moorad, et al. "Capital Market Instruments: Analysis and Valuation". Prentice Hall, 2002. Pg 183. ISBN 0-273-65412-8.] .

References


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