PSA model

One of two standard models for describing the rate at which prepayments have been, are, or are expected to be received for mortgages and mortgage-backed securities. The model assumes that borrowers are far less likely to refinance a new mortgage than they are to refinance an older mortgage. Thus the PSA model builds in an assumption of a 30-month phasein or ramp-up of prepayments. After a mortgage or a pool of mortgages is 30 months old, a speed of 100 percent PSA is equal to 6 percent CPR. Similarly, a speed of 200 percent PSA is equal to 12 percent CPR and 50 percent PSA is equal to 3 percent CPR. During the initial 30-month ramp-up, the PSA model assumes much slower speeds. For the first month, 100 percent PSA equals 0.20 percent CPR. In the second month, 100 percent PSA equals 0.40 percent CPR. This level rate of increase continues throughout the 30-month period. PSA is the standard prepayment model of the Bond Market Association, formerly the Public Securities Association. The letters PSA were once an acronym for the former organization name but now stand for "prepayment speed assumptions."