Consider a primary mortgage market lender who has just now originated 1,000 30-year, monthly payment loans...

 

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Consider a primary mortgage market lender who has just now originated 1,000 30-year, monthly payment loans for $800,000 each at 5.25% interest with each borrower paying 1 point at origination. The lender wishes to sell the pool of mortgages as a mortgage pass through security (MPTS). Investors are demanding a 4.875% yield on the MPTS backed by the pool. A servicing firm is willing to service the loans in the pool for 0.5% annually (paid monthly) and the pool is expected to prepay based on the 100% PSA prepayment model. What is the market value of the pool? Hint: Don't reinvent the wheel to answer this question. Look for resources in the Modules that can greatly reduce the time required to calculate the answer. Recall that the 100% PSA model assumes that the prepayment rate in month 1 is 0.2% and that the rate increases by .2% each month until it reaches 6% (month 30) and then remains constant at 6% for the life of the pool. Consider a primary mortgage market lender who has just now originated 1,000 30-year, monthly payment loans for $800,000 each at 5.25% interest with each borrower paying 1 point at origination. The lender wishes to sell the pool of mortgages as a mortgage pass through security (MPTS). Investors are demanding a 4.875% yield on the MPTS backed by the pool. A servicing firm is willing to service the loans in the pool for 0.5% annually (paid monthly) and the pool is expected to prepay based on the 100% PSA prepayment model. What is the market value of the pool? Hint: Don't reinvent the wheel to answer this question. Look for resources in the Modules that can greatly reduce the time required to calculate the answer. Recall that the 100% PSA model assumes that the prepayment rate in month 1 is 0.2% and that the rate increases by .2% each month until it reaches 6% (month 30) and then remains constant at 6% for the life of the pool.