RT Journal Article
SR Electronic
T1 Reverse Engineering of Prepayment Functions and<br/>the Potential Applications for MSRs and IOs Valuation
JF The Journal of Structured Finance
FD Institutional Investor Journals
SP 45
OP 54
DO 10.3905/jsf.2016.22.3.045
VO 22
IS 3
A1 Carlos E. Ortiz
A1 Charles A. Stone
A1 Anne Zissu
YR 2016
UL https://pm-research.com/content/22/3/45.abstract
AB By reverse engineering the different projected prepayment curves submitted by several banks to Bloomberg, the authors were able to develop a model with six parameters, representative of these projections. Some of the parameters in our model must have different interpretations across banks. Mortgage servicing rights and interest only securities are the most affected securities by prepayments, and the model shows that there is a need for further research to refine projections of prepayments. The main users of this reverse-engineered prepayment model will be investors and servicers of mortgage-backed securities. The model could be uploaded on Bloomberg and be interactive, in order to allow different parties to enter their own assumptions and obtain their own prepayment projections.TOPICS: MBS and residential mortgage loans, quantitative methods