Question

Given a pool of 30 year fully-amortizing FRMs making monthly payments to investors with the following characteristics:

Starting pool balance 250,342,967

WAC: 4%

Pass-through rate: 3.45%

Prepayment assumption: 75 PSA

WAM: 357 (Loans seasoned for 3 months before entering pool)

What is the regular payment in month 1, dollar amount of prepayment, total cash flow to the pool, total cash flow to investors, and ending pool balance for the month.

Answer 1

Answer 1: First month regular payment = 250,342,967/[(1-1/((1+(0.04/12))^357))/(0.04/12)] = $1199173.07

where 0.04= WAC, 357=WAM, 250,342,967=Starting pool balance

Interest =(0.0345/12)*250,342,967 = $719736.03

where 0.0345 = Pass-through rate

Scheduled principal payment = 1199173.07 - [(0.04/12)*250,342,967] = $364696.51

where 0.04= WAC

Using 75% PSA model and seasoning of 3 months,

CPR = 0.75 *(4/30)*0.06 = 0.006

so, first month SMM = 1- [1-0.006]^(1/12) =0.0005014

Answer 2: prepaid principal = 0.0005014* ( 250,342,967 - 364696.51) = $125339.10

Answer 3: total cash flow to the pool after first month= Interest + Scheduled Principal+ prepaid principal

                                                                            = $719736.03 + $364696.51 + $125339.10

                                                                            =$1209771.64

Answer 4: Total cash flow to investors = Interest + Scheduled Principal = $719736.03 + $364696.51 = $1084432.54(as excluding prepaid principal collected to the pool and pass through to the investors)

so, if we consider that prepaid principal, investor would get $1209771.64

Answer 4: Ending pool balance for the month = $250,342,967 - $364696.51 - $125339.10 = $249,852,931.39