PSA prepayment speed - Investment & Finance Definition
A measure developed by the Bond Market Association that studies the rate of prepayment of mortgage loans. The model represents an assumed rate of prepayment each month of the then-unpaid principal balance of a pool of mortgages. The PSA prepayment speed model is used primarily to derive an implied prepayment speed of new production loans. A 100% PSA assumes prepayment rates of 0.2% annually of the then-unpaid principal balance of mortgage loans in the first month after origination. An additional 0.2% annually is added in each month thereafter until the 30th month. Beginning in the 30th month and in each month thereafter, 100% PSA assumes a constant annual prepayment rate of 6%. Multiples are calculated from this prepayment rate; for example, a 150% PSA assumes annual prepayment rates will be 0.3% in month one, 0.6% in month two, and 9% from month 30 until the repayment is complete. A 0% PSA assumes no prepayments. The term PSA comes from the Public Securities Association, which was the previous name of the Bond Market Association.