Question

A pool of mortgages contains 3%, 15-year loans with the total beginning balance of $100 million. The pool backs 116 principal-only (PO) shares and 99 interest-only (IO) shares. Monthly expenses and fees amount to 0.04% of the beginning-of-the-month balance (they are subtracted from the interest portion). In the first month, the total payments from the pool were $713.3 thousand. What was the cash flow per PO share (to the nearest dollar)? Assume no defaults.

Answer 1

Pool	100,000,000.00
Total Payment	713,300.00
Interest	3% annual
	0.25%	Per Month
Interest Component	Begin Principal*0.25%
	250,000.00
Principal Received	713300-250000	463,300.00
monthly expenses	.04% of begin principal	40,000.00
Interest component (post monthly expenses)	250000-40000	210,000.00
Interest attributable to IO Shares holder	210,000.00
Total IO Shares	99
Total PO Shares	116
Payment per IO Share	210000/99	2,121
Payment Per PO Share	463300/116	3,994