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 [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 …

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