- Joined
- 4/21/11
- Messages
- 871
- Points
- 73
"The Conditional Prepayment Rate (CPR) is the annualized expected rate of prepayment of principal for a pool of mortgage loans and mortgage-backed securities. Lenders are likely to be happy with a high CPR when mortgages interest rates are rising; when rates are going down mortgage pools with high CPR are considered undesirable by investors.
The Conditional Prepayment Rate (CPR) is used as prepayment measure for other loans, as well, and not only for mortgage loans. However, mortgage loans have direct correlation with existing mortgage interest rates and while when rates for other loans drop, prepayment levels are unlikely to rise dangerously. With mortgage loans, and especially fixed rate home loans, a drop of the interest rates signifies increased risk to investors, as homeowners tend to refinance. "
"When rates are going down mortgage pools with high CPR are considered undesirable by investors."
Shouldn't this be the other way around. I'm a bit confused. Lower rates would mean that these pool receive lower payments. Shouldn't this be bad for investors and them be pro-pre-payments?
The Conditional Prepayment Rate (CPR) is used as prepayment measure for other loans, as well, and not only for mortgage loans. However, mortgage loans have direct correlation with existing mortgage interest rates and while when rates for other loans drop, prepayment levels are unlikely to rise dangerously. With mortgage loans, and especially fixed rate home loans, a drop of the interest rates signifies increased risk to investors, as homeowners tend to refinance. "
"When rates are going down mortgage pools with high CPR are considered undesirable by investors."
Shouldn't this be the other way around. I'm a bit confused. Lower rates would mean that these pool receive lower payments. Shouldn't this be bad for investors and them be pro-pre-payments?