Original Face
Categories: Bonds
“Original face” is a term we use to describe Cher...pre-plastic surgery.
It’s also used to refer to the original value of a mortgage-backed security, or MBS, which is maybe not as amusing, but is probably a lot more helpful in terms of understanding our investment portfolio.
Let’s say we invest in an MBS that has an original face, or par value, of $1,000,000. As we know, MBSs are based on actual, real-life mortgages, and every month, those mortgagees will (hopefully) be making mortgage payments. That means that the value of our MBS, like the balance due on those mortgages, is going to decrease as time goes on.
Let’s say our $1,00,000 MBS is actually five $250,000 mortgages packaged together into one security. After one year, our homeowners have collectively made $76,000 in mortgage payments, which means the current value—or “current face,” to keep with the face talk—of our MBS is $924,000. What does this do to our original face? Absolutely nothing, because that never changes. No matter how much the mortgages are paid down, no matter how much the current face changes, the original value of the security backing them remains the same.
Kind of like Cher’s lustrous, wrinkle-free complexion.
