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Suppose that you are analyzing prepayments of a pass through security that was issued more than 15 years ago. The weighted average coupon (WAC) for
Suppose that you are analyzing prepayments of a pass through security that was issued more than 15 years ago. The weighted average coupon (WAC) for the underlying mortgage pool was 13%. Suppose that the mortgage rate over the year of the analysis declined from 8% to 7% but prepayments for chis mortgage pool you are analyzing did not increase. Explain why there is no increase in prepayments despite the lower mortgage rate relative to 13% being paid by borrowers and the decline in the mortgage rates over the year.
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