Public Securities Association Standard Prepayment Model - PSA

AAA

DEFINITION of '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 Public Securities Association Standard Prepayment model (PSA) is one of several models used to calculate and manage prepayment risk. The PSA model acknowledges that prepayment assumptions will change during the life of the obligation and affect the yield of the security. The model assumes a gradual rise in prepayments, which peaks after 30 months. The standard model, called "100 percent PSA," starts with an annualized prepayment rate of 0% in month zero, with 0.2% increases each month until peaking at 6% after 30 months.

Also called "PSA prepayment model."

INVESTOPEDIA EXPLAINS 'Public Securities Association Standard Prepayment Model - PSA'

Prepayment assumptions are based on data that show during the first few years, a borrower is less likely to move to a different home, is less likely to refinance and is less likely to be able to afford additional payments. An annual conditional prepayment rate of 6% is assumed after 30 months. The Public Securities Association Standard Prepayment model was developed by the Public Securities Association (PSA). The PSA eventually became the Bond Market Association, and in 2006, after merging with the Securities Industry Association, become the Securities Industry and Financial Markets Association (SIFMA).

RELATED TERMS
  1. Collateralized Mortgage Obligation ...

    A type of mortgage-backed security in which principal repayments ...
  2. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  3. Yield

    The income return on an investment. This refers to the interest ...
  4. Contraction Risk

    The risk faced by the holder of a fixed income security when ...
  5. Extension Risk

    The risk of a security's expected maturity lengthening in duration ...
  6. Ginnie Mae - Government National ...

    A U.S. government corporation within the U.S. Department of Housing ...
RELATED FAQS
  1. I'm about to retire. If I pay off my mortgage with after-tax money I have saved, ...

    Only you and your financial advisor, family, accountant, etc. can answer the "should I?" question because there are many ... Read Full Answer >>
  2. Why has the market for high yield bonds grown so much?

    Reasons for the rapid growth of the high-yield bond market include the creation of new types of issues, a prolonged period ... Read Full Answer >>
  3. How can electricity be traded as a commodity by an individual investor?

    Electricity can be traded in the financial marketplace like any other commodity. Electricity futures trading offers an alternative ... Read Full Answer >>
  4. What are some examples of smart beta ETFs that use passive and active management?

    There are a number of smart beta exchange-traded funds (ETFs) that use passive and active management, including the WisdomTree ... Read Full Answer >>
  5. How does implied volatility impact the pricing of options?

    Implied volatility is an important aspect of the time value premium of an option. As implied volatility increases, call and ... Read Full Answer >>
  6. Which federal regulatory agencies approved and are now responsible for enforcing ...

    Five federal regulatory agencies approved and are jointly responsible for enforcing the Volcker rule. These agencies include ... Read Full Answer >>
Related Articles
  1. Credit & Loans

    Mortgages: Fixed-Rate Versus Adjustable-Rate

    Both of these have advantages and disadvantages depending on your financial needs and prospects.
  2. Personal Finance

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  3. Budgeting

    Mortgages: How Much Can You Afford?

    Answering this means number-crunching as well as factoring in other considerations and expenses.
  4. Credit & Loans

    Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  5. Credit & Loans

    What is a Syndicated Loan?

    A syndicated loan is one that involves a group of lenders (called the syndicate) who pool their lending resources to make a loan.
  6. Investing Basics

    What is an Asset-Backed Security?

    An asset-backed security (ABS) is a debt security collateralized by a pool of assets.
  7. Taxes

    What is an Ad Valorem Tax?

    An ad valorem tax is a levy placed on real or personal property based on the assessed value of that property.
  8. Professionals

    Top ETFs, Mutual Funds for Investing in Water

    The nation's water supply is declining as demand is increasing. This presents an investment opportunity, just mind your liquidity.
  9. Professionals

    Structured Notes: What You Need to Know

    Structured notes are complex, high risk and might not be suitable for individual investors. Here's why.
  10. Taxes

    The Advantages of Investing in Art & Collectibles

    Investing in collectibles can be profitable and fun, and can offer tax benefits for some.

You May Also Like

Hot Definitions
  1. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  2. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  3. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  4. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  5. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  6. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!