Series 50: Estimating Prepayment Risk

Taken from our Series 50 Online Guide

Estimating Prepayment Risk

A mortgage security “matures” when the investor receives the final principal payment. Most CMO tranches have a stated maturity based on the latest date on which the principal from the collateral could be paid in full. This date may turn out to be inaccurate, because it assumes no prepayments on the underlying mortgage loans.

CMOs are more often discussed in terms of their average li

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