Pool Factor
Categories: Accounting
Let’s talk asset-backed securities. Or ABS, 6-packs. We know them, we love them, and if we’re smart about it, we can even make a little money off them. But when it comes to asset-backed securities like MBSs (mortgage-backed securities), it’s helpful to understand a little something called the pool factor. The “pool factor” is the current principal amount of the security divided by its original principal amount, and its whole purpose in life is to tell us how much value is left in that security.
When something like an MBS first starts out, its current principal and original principal value are equal. In other words, the pool factor is "one." As the folks who own those mortgages pay down the balance, the pool factor decreases. The closer it is to zero, the closer the security is to being paid off in full. Once a month, institutions like Freddie Mac and Ginnie Mae publish pool factor info, and it typically shows up as a five-digit decimal.
For example, if we’ve got an MBS worth $250,000 and its pool factor is 0.2375, then we know that the remaining balance is $59,375. We can then compare this to the MBS’s forecasted repayment schedule and see if it’s on track, or if there are any potential red flags we should be concerned about.
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Finance: What is an Asset Backed Securit...7 Views
Finance Allah Shmoop what is an asset backed security Well
if you haven't seen our M night channel on directed
video on Collateral you should It won the Academy Award
for best finance video frequently confused with a Tom Cruise
action flick Riveting stuff So why would you see this
or other videos while other than to see Cem truly
groundbreaking CG effects like this Because assets backing a security
our collateral that is the asset itself is the guarantee
that bond holders get if the money isn't paid back
or said differently The bonds borrowed against the assets function
as the collateral in the loan funding whatever a B
s security is being offered You have an airplane or
actually one hundred of them together they're worth two billion
box bonds were issued to buy them two billion bucks
worth of bonds BBB The planes are going to be
incorporated into SHMOOP West Airlines flight schedule Only problem Shmoop
West doesn't have the collateral or the cash Ola to
just you know by them But shmoop West Air can
lease them or pay interest on them for the privilege
of using them And that's a good thing because well
eBay airlines just happens to own a bunch of used
airplanes So what happens then Well the owner of the
airplanes pledges them as collateral and raises cash ola money
in the form of bonds by borrowing against the assets
of the airplane The asset of the airplane is the
guarantee that backs the bond Should something up you know
go awry So uh yeah On behalf of everyone here
it's shmoop West Air We'd like to wish you a
safe ish flight Peanuts