Portfolio Runoff


DEFINITION of 'Portfolio Runoff'

A decrease in the assets of a mortgage-backed securities portfolio due to the prepayment of the securities held in that portfolio. It is risk these portfolios face, which can lead to pre-payment risk and that usually forces the fund to reinvest the proceeds at lower yields than where the original securities were purchased.

BREAKING DOWN 'Portfolio Runoff'

Most mortgage-backed securities have an embedded call option held by the borrowers of the underlying mortgages backing those securities. When interest rates fall or home values rise, an incentive is created for homeowners to refinance their mortgage, which leads to portfolio runoff for the investors in those mortgages.

  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Asset Management

    1. The management of a client's investments by a financial services ...
  3. Fannie Mae - Federal National Mortgage ...

    A government-sponsored enterprise (GSE) that was created in 1938 ...
  4. Prepayment Risk

    The risk associated with the early unscheduled return of principal ...
  5. Ginnie Mae - Government National ...

    A U.S. government corporation within the U.S. Department of Housing ...
  6. Mortgage-Backed Security (MBS)

    A type of asset-backed security that is secured by a mortgage ...
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