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FRM Part I · FRM Exam Part I · Mortgages and Mortgage-Backed Securities

Which statement about the PSA prepayment benchmark is correct?

At 100 PSA, CPR starts at 0.2% and increases by 0.2 percentage points each month for the first 30 months, reaching 6%, and then stays at 6% for the remaining life. Other PSA speeds are simple multiples of this ramp.

  1. A100 PSA assumes a constant 6% CPR from the first month
  2. B100 PSA assumes CPR rises 0.2% per month for the first 30 months, then stays at 6%Correct
  3. C200 PSA assumes CPR of 6% after month 30
  4. D100 PSA assumes CPR rises 0.2% per month for 60 months, reaching 12%

Explanation

The 100 PSA benchmark starts at 0.2% CPR in month 1 and increases 0.2% each month until month 30, reaching 6%, then is flat. 200 PSA doubles these rates, reaching 12% after month 30.

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