PSA Prepayment Rate

Definition:

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 implied prepayment speed of new production loans. 00% PSA assumes a prepayment rate of 2% per month in the first month following the date of issue, increasing at 2% percentage points per month thereafter until the 30th month. Thereafter, 100% PSA is the same as 6% CPR (Constant prepayment rate).

Investing Essentials


Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day

Historical Cost Accounting Convention

An accounting technique that values an asset for balance sheet purposes at the price paid for the asset at the time of its acquisition.

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