PSA prepayment model

PSA prepayment model

PSA Prepayment Model is a prepayment model by the SIFMA (Securities Industry and Financial Markets Association) formerly known as Public Securities Association or PSA that assumes increasing prepayment rates for the first 30 months of the lifetime and constant rates thereafter. Real world experience shows that during the first few years borrowers
# are less likely to move to a different home,
# they are less likely to refinance and that
# their financial situation is too strapped to allow for additional payments.

The standard model (also called "100 percent PSA") works as follows: starting with an annualized prepayment rate of 0% in month 0, the rate will increase by 0.2% each month, until it peaks at 6% after 30 months. From the 30th month on the model assumes an annual constant prepayment rate of 6%.

Variations of the model are expressed in percent, e.g., a 150% model means a monthly increase by 0.3%, until the peak of 9% is reached after 30 months. The months thereafter will have a constant annual prepayment rate of 9%.


Wikimedia Foundation. 2010.

Игры ⚽ Поможем решить контрольную работу

Look at other dictionaries:

  • Prepayment Model — A model used to estimate the level of prepayments on a loan portfolio that will occur in a set period of time, given possible changes in interest rates. Prepayment models are based on mathematical equations and usually involve the analysis of… …   Investment dictionary

  • PSA Prepayment Rate — The Bond Market Trade Association s Mortgaged Asset Backed Securities Division s prepayment model based on an assumed rate of prepayment each month of the then unpaid principal balance of a pool of mortgages. PSA is used primarily to derive an… …   Financial and business terms

  • Prepayment — is early repayment of a loan by a borrower. In the case of a mortgage backed security (MBS), prepayment is perceived as a risk, because mortgage debts are often paid off early in order to incur lower total interest payments through cheaper… …   Wikipedia

  • PSA — may refer to: PSA International (formerly Port of Singapore Authority), world s second largest port operator PSA Peugeot Citroën, French vehicle manufacturer PSA prepayment model, developed by the Bond Market Association (formerly the Public… …   Wikipedia

  • Public Securities Association Standard Prepayment Model - PSA — An assumed monthly rate of prepayment that is annualized to the outstanding principal balance of a mortgage loan. The PSA model is one of several models used to calculate and manage prepayment risk. The PSA model acknowledges that prepayment… …   Investment dictionary

  • PSA — A prepayment model based on an assumed rate of prepayment each month of the then unpaid principal balance of a pool of mortgages. PSA is used primarily to derive an implied prepayment speed of new production loans, a 100% PSA assumes a prepayment …   Financial and business terms

  • PSA model — One of two standard models for describing the rate at which prepayments have been, are, or are expected to be received for mortgages and mortgage backed securities. The model assumes that borrowers are far less likely to refinance a new mortgage… …   Financial and business terms

  • Securitization — is a structured finance process, which involves pooling and repackaging of cash flow producing financial assets into securities that are then sold to investors. The name securitization is derived from the fact that the form of financial… …   Wikipedia

  • Mortgage-backed security — Securities Securities Bond Stock Investment fund Derivative Structured finance Agency security …   Wikipedia

  • ramp — (1) A steady, noninstantaneous change in rates. Usually a projected change in rates with small, equal, incremental changes in each time period over a series of time periods until the full amount of the projected change is achieved. (2) A term… …   Financial and business terms

Share the article and excerpts

Direct link
… Do a right-click on the link above
and select “Copy Link”