Modeling Prepayment of Conventional Mortgage-Backed Securities

Date: 
Thursday, April 27, 2017 - 4:00pm
Location: 
110 Math Science Building
Speaker: 
Jeff Wagner (advisor Allanus Tsoi)
(MU Math)

The following paper introduces the reader to the background and definitions of a Mortgage-Backed Security.  We look at what prepayment is and the usefulness of modeling this.  We consider the variables that are useful in modeling prepayment and how they are applied to the model itself.  We delve into the methodology of the model and the decisions that were determined based on historical data, industry standards or deduction by the author.  The paper explains so-called 'sub-models' that were used to help attain the prepayments speed desired.  Finally, we look at the mathematics used to determine the different algorithms applied in the model.  While this model is not comprehensive, it does include much of the information given by Fannie Mae in their Mortgage-Backed Security data systems.  Note this paper is not meant to be all encompassing for Mortgage-Backed Securities, but rather an introduction to the concept and some potential new perspectives on the subject.