What is 'Current Face'

Current face is the current par value of a mortgage-backed security (MBS). When a mortgage-backed security is initially structured, the par value given to the pool is called the original face. Simply put, the original face is the total outstanding principal balance at issue, and the current face is the total outstanding principal value at any point thereafter. Naturally, as payments come in and the principal of the underlying mortgages in the pool is paid down, the current face declines compared to the original face. Current face is calculated by multiplying the current pool factor by the mortgage-backed security's original face value.

Current face is also referred to as current face value. 

BREAKING DOWN 'Current Face'

Current face is basically a snapshot of how a mortgage-backed security is doing now compared to when it started out. By looking at the current face, an investor can check the valuation assumptions that were made when the MBS was created. This leads to questions like whether or not the assumed prepayment rate was accurate and whether the valuation is higher or lower than it should be in light of the actual prepayment risk to date. 

Why Current Face Matters

Mortgage-backed securities with the same issue date, same coupon and same original face value can have greatly different current faces. Mortgage-backed securities pay down at different rates based on the characteristics of the underlying loans, for example, the pool may be made up of borrowers of high credit worthiness who can refinance easily if interest rates drop. Even if the borrowers are roughly equivalent in terms of credit rating, there are bound to be differences in the actual prepayment speed of underlying mortgages as people move, pass away or otherwise see their circumstances change.

Holders of MBS do want to see the underlying mortgages repaid, as that is where they get their principal and interest on the investment from. However, they do not want to see current face falling faster than planned. The pricing of an MBS is usually done using a model that optimizes the pool so an investor knows what he or she is getting over time. That said, the interest rate environment affects mortgage-backed securities more than most debt-backed investments. Borrowers tend to refinance at the worst possible time for investors, returning capital to them in a low-interest environment where yields are hard to come by. If prepayment increases more than was projected, the investment won't have the returns that were initially expected. In short, faster-than-expected drops in the current face of an MBS are bad news for the investors.

  1. Original Face

    Original face is the total outstanding balance when a mortgage-backed ...
  2. Pool Factor

    The pool factor is a measure of how much of the original loan ...
  3. Residential Mortgage-Backed Security ...

    Residential mortgage-backed securities are a type of security ...
  4. Agency MBS Purchase

    Agency MBS purchase is most commonly used to refer to the U.S. ...
  5. Vintage

    Vintage is a slang term used by mortgage-backed securities (MBS) ...
  6. Credit Loss Ratio

    Credit loss ratio is the ratio of credit-related losses to the ...
Related Articles
  1. Investing

    Top Mortgage-Backed Securities ETFs

    Investing in mortgage-backed securities has many advantages, but studying their history may make you wary.
  2. Investing

    The Risks of Mortgage-Backed Securities

    Find out how weighted average life for mortgage-backed securities (MBS) guards against prepayment risk. Determine how yields are affected by the market.
  3. Personal Finance

    How To Become a Mortgage-Backed Securities Analyst

    Specializing in structured or derivative credit products like mortgage-backed securities requires education and prior experience in the mortgage field.
  4. Investing

    Asset-backed and mortgage-backed securities: An introduction

    Learn more about the structure of asset-and mortgage-backed securities, securities backed by pools of mortgage or non-mortgage assets, along with some examples of ABS, MBS and their valuations. ...
  5. Insights

    The Mortgage-Backed Security Market Faces Major Tumoil

    The Fed is expected to begin selling off its $1.75 trillion portfolio of mortgage-backed securities.
  6. Personal Finance

    Profit From Mortgage Debt With MBS

    Mortgage-backed securities can offer monthly income, a fixed interest rate and even government backing.
  7. Investing

    MBB: iShares Barclays MBS Bond Fund ETF Analysis

    Explore the iShares MBS ETF and see how this fund composed of agency-issued mortgage debt compares to similar ETFs in the category.
  8. Investing

    A Smart Idea for Mortgage Bonds

    This old mortgage bond ETF is undergoing a transformation – and getting cheaper.
  9. Investing

    3 ETFs to Take Advantage of Increased Mortgage Rates (REM, VMBS)

    Obtain a comparative review and analysis of three of the top-performing ETFs that are poised to generate profits from increased mortgage interest rates.
  1. Why do MBS (mortgage-backed securities) still exist if they created so much trouble ...

    Read several different arguments in favor of allowing the trade of mortgage-backed securities, even after the financial crisis ... Read Answer >>
  2. Are all mortgage backed securities (MBS) also collateralized debt obligations (CDO)?

    Learn more about mortgage-backed securities, collateralized debt obligations and synthetic investments. Find out how these ... Read Answer >>
  3. Par Value vs Face Value

    Learn about the par value and face value of securities as well as what these synonymous terms mean about the value and purchase ... Read Answer >>
Hot Definitions
  1. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  2. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  3. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  4. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  5. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  6. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
Trading Center