## What is the 'Pool Factor'

The pool factor is a measure of how much of the original loan principal remains in an asset-backed security (ABS). The pool factor is most strongly associated with mortgage-backed securities (MBS), which gather mortgages together into a pool for sale to investors. The pool factor is expressed as a numerical factor between 0 and 1. All mortgage-backed securities start life with a pool factor of 1 and then move toward zero (total payment) over time as payments are made on the underlying mortgages. If 50% of the total original value of an MBS is paid off, the pool factor will be 0.500. The pool factor is calculated by dividing the outstanding principal balance (current face) by the original principal value (original face):

Pool Factor = Outstanding Principal Balance / Original Principal Value

Next Up

## BREAKING DOWN 'Pool Factor'

The pool factor for mortgage-backed securities issued by Freddie Mac (FHLMC), Fannie Mae (FNMA) and Ginnie Mae (GNMA) is published on a monthly basis. It is essentially a measure of how much value is left inside an MBS. When an MBS is created, there is a planned schedule of payments that lines up with a forecasted pool factor at various phases in the life of the MBS. If the pool factor is declining faster than expected, it could mean that refinancing and early repayment are issues in that particular MBS. This can be a red flag for investors, as it usually means there are fewer properties serving as collateral for that particular MBS compared with other MBS where the pool factor is shrinking as projected.

## Calculating the Pool Factor

The pool factor is listed as a 5-digit figure in most cases and is very easy to work with. If the original face value of a pooled MBS is \$100,000 and the pool factor released that month is 0.4587, then the remaining balance in the security yet to be paid to the investor would be \$45,870. That \$45,870 is the current face of the MBS, and you can get the original face (\$100,000) by dividing the current face by the pool factor.

Despite being a bastion of basic math in the complex world of securitization, the pool factor isn’t particularly useful without context. Investors watch the changes in the pool factor for any signs of trouble in the model upon which the MBS is built. As with any structured security, the original assumptions can shift resulting in an imbalance in the risk-return tradeoff that was originally envisioned. That shift, in turn, can lead to the security being worth more or less than the investor originally paid for it. In short, the pool factor is one of the key data points an investor will watch when trying to evaluate the fair market price of a mortgage-backed security.

RELATED TERMS
1. ### Original Face

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

A jumbo pool is a mortgage-backed security that is collateralized ...
3. ### Weighted Average Coupon - WAC

The weighted average coupon (WAC) is the weighted-average gross ...
4. ### Guarantee Fees

Guarantee fees are the basis points paid by banks to MBS providers ...
5. ### Agency MBS Purchase

Agency MBS purchase is most commonly used to refer to the U.S. ...
6. ### Option Pool

Stock in a startup set aside to be granted to employees is referred ...
Related Articles
1. Tech

### How to Choose a Cryptocurrency Mining Pool

Here are some selection criteria cryptocurrency miners should consider before joining a crypto mining pool.
2. Tech

### How Do Cryptocurrency Mining Pools Work?

Here's how cryptocurrency mining pools work.
3. Insights

### An Introduction to Dark Pools

Dark pools are an ominous-sounding term for private exchanges or forums for trading securities; unlike stock exchanges, dark pools are not accessible by the investing public.
4. Investing

### Top 3 Mortgage Backed Securities (MBS) ETFs (MBB, MBG)

Discover some of the best opportunities for investors seeking exposure to mortgage-backed securities through utilizing exchange-traded funds.
5. Insights

### Should You Be Afraid Of Dark Pool Liquidity?

Don't fear the deep end. Dark pool liquidity can help drive down stock cost for everyday investors.
6. Investing

### Top Mortgage-Backed Securities ETFs

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

### Find Security In Covered Bonds

Find out about a safe investing alternative that could have prevented the subprime meltdown.
8. Investing

### Asset Allocation In A Bond Portfolio

An investor's fixed-income portfolio can easily beat the average bond fund. Learn how and why!
9. Personal Finance

### Behind the scenes of your mortgage

Four major players slice and dice your mortgage in the secondary market
10. 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.
RELATED FAQS
1. ### What is securitization?

Securitization involves taking an illiquid asset, or group of assets, and transforming it into a security. A typical example: ... Read Answer >>
Hot Definitions
1. ### Discount Rate

Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
2. ### Economies of Scale

Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
3. ### Quick Ratio

The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
4. ### Leverage

Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
5. ### Financial Risk

Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
6. ### Enterprise Value (EV)

Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
Trading Center