Question

3. Complete the following table (in thousands of dollars) assuming a prepayment rate of 165PSA:

Original balance: $100,000,000; Pass-through rate: 9.0%; WAM: 360 months;

	Balance	SMM	Mortgage Payment	Interest	Scheduled Principal	prepayment	total principal	cash flow
1
2

WAC: 9.65%

Answer 1

Month Balance	SMM	Mortgage Payment	Interest	Scheduled Principal	prepayment	total principal	cash flow
1   100,000	0.028%	841	750	37	28	67	817
2 99,933		841	749.5	37.4	55	92.4	841.9

1month

CPR = 1.65 * 6% * t/30 , if t is less than or equal to 30

= 1.65 * 6% * 1/30 = 0.33%

SMM = 1 –(1 –CPR)^1/12= 0.028%

Interest received by investors = balance * monthly pass through rate = 100,000 * 9.0%/12 = 750

Interest paid by mortgage borrowers = balance * monthly WAC = 100,000 * 9.65% / 12 = 804

Scheduled principal = scheduled mortgage payment –interest = 841 –804 = 37

Prepayment = (beginning balance –scheduled principal payment) * SMM = (100,000-37) 0.028% = 28

Total principal payment = scheduled principal + prepayment = 37 + 28 = 67

Cash flow to investors = interest + total principal payment = 750 + 67 = 817

month 2

Balance = balance in last month –principal payment = 100,000 –67 = 99,933

CPR = 1.65 * 6% * (2/30) = 0.66%

SMM = 1 –(1 –CPR)^1/12=0.0552%

Interest received by investors = balance * monthly pass through rate = 99,933* 9%/12 = 749.5

Interest paid by mortgage borrowers = balance * monthly WAC = 99,933* 9.65% / 12 = 803.6

Scheduled principal = scheduled mortgage payment –interest = 841 –803.6= 37.4

Prepayment = (beginning balance –scheduled principal payment) * SMM = (99,933-37.4) 0.0552% = 55

Total principal payment = scheduled principal + prepayment = 37.4+ 55 = 92.4

Cash flow to investors = interest + total principal payment = 749.5 + 92.4 = 841.9