CPR and PSA and SMM

CFA Level II
#1

Please can u explain this…

Explain why 30 months after the origination of a Mortgage Pool,discussing Prepayments in terms of one CPR and a PSA are identical…

I dont get whta this question is asking…

#2

PSA is expressed as a series of CPRs per month. A standard PSA is 100 PSA which means that from month 1 to 30, it will increase by 0.2% CPR per month. From month 30 to 360, it will be stable at 6% CPR. SO after month 30, the prepayment speeds in CPR and PSA are the same.

Hope I answer your question

#3

I have no idea what “discussing Prepayments in terms of one CPR and a PSA are identical” means. If someone wrote this in a question, the question should be scrapped, and the author dropped on something sharp.

The PSA standard is:

  • Between month 1 and month 29, 100 PSA = (month #) / 30 × 6% CPR
  • From month 30 on, 100 PSA = 6% CPR

Perhaps they mean that from month 30 on, the percentage CPR for a given PSA value is constant. That’s true, but it’s not the same as what they wrote.

#4

Thanks Massimo and S2000…

I understand what the question is asking now…The question is worded in a very bad manner and it must be scrapped too…

#5

My pleasure.