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The Green Mortgage Company has originated a pool containing 7 5 ten - year fixed interest rate mortgages with an average balance of $ 1
The Green Mortgage Company has originated a pool containing tenyear fixed interest rate mortgages with an average balance of $ each. All mortgages in the pool carry a coupon of percent. For simplicity, assume that all mortgage payments are made annually at interest. Green would now like to sell the pool to FNMA.
Required:
a Assuming a constant annual prepayment rate of percent for simplicity, assume that prepayments are based on the pool balance at the end of each year what will be the price that Green should obtain on the date of issuance if market interest rates were percent? percent? percent?
b Assume that five years have passed since the date in a What will the pool factor be If market interest rates are percent, what price can Green obtain then?
c Instead of selling the pool of mortgages in a Green decides to securitize the mortgages by issuing passthrough securities The coupon rate will be percent and the servicing and guarantee fee will be percent. However, the current market rate of return is now percent. How much will Green obtain for this offering of MPTs What will each purchaser pay for an MPT security, assuming the same prepayment rate as in a
d Assume now that immediately after purchase in c interest rates fall to percent and that the prepayment rates are expected to accelerate to percent per year, beginning at the end of the first year. What will the MPT security be worth now?
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