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Dealer-Median Prepayment Speed

What is 'Dealer-Median Prepayment Speed'

The median value of all Wall Street securities dealers' prepayment speed estimates for the underlying mortgages used to form mortgage-backed securities. The prepayment speed estimates used by banks and other regulated financial enterprises to value and manage mortgage-backed security portfolios are a concern to regulators. To that end, dealer-median speeds are widely used as conservative estimates.

Explaining 'Dealer-Median Prepayment Speed'

The dealer-median prepayment speed is an important consideration, as it is the median measure of how fast mortgage borrowers will prepay their mortgages. Prepayment speed estimates are also a very important variable in mortgage-backed securities valuation and analysis. Investors and traders compete to develop more accurate proprietary models in order to outperform each other in the broader market.


Further Reading


Call Protection in Mortgage Contracts
papers.ssrn.com [PDF]
… Effective durations are calculated with dealer median prepayment forecasts using Bloomberg analytics … change in the direction of future rates could produce a large drop in prepay ments to … 50 basis point increase in rates is accompanied by a drop in prepayment speed from 15 …



Q&A About Dealer-Median Prepayment Speed


Where can you find information about these variables online?

You can find this information on Bloomberg or Reuters websites."

How are they important considerations?

They are important considerations because they help investors and traders develop more accurate proprietary models in order to outperform each other in the broader market.

How can you improve your model's accuracy if you want it to be better than others'?

You can improve your model's accuracy by using dealer-median prepayment speeds that have been adjusted for risk factors such as interest rates, loan size, borrower credit score, property location, etc..

What is the median value of all Wall Street securities dealers' prepayment speed estimates for the underlying mortgages used to form mortgage-backed securities?

The median value of all Wall Street securities dealers' prepayment speed estimates for the underlying mortgages used to form mortgage-backed securities is a concern to regulators.

What do these values represent?

These values represent how fast mortgage borrowers will prepay their mortgages.

Why are they an important variable in mortgage-backed security valuation and analysis?

They are an important variable in mortgage-backed security valuation and analysis because investors and traders compete to develop more accurate proprietary models in order to outperform each other in the broader market .

What do regulators use as conservative estimates?

Regulators use dealer-median prepayment speeds as conservative estimates.

Who uses them as conservative estimates?

Banks and other regulated financial enterprises use them as conservative estimates.

Are there different types of prepayment speeds?

Yes, there are different types.

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