Hi,
I have been hearing of this term off late in my office. I tried to google and wikipedia but was not of much help. Can any one tell me what pay-up is and how does it work?
For each coupon there is a price for the generic TBA. You pay up (higher price) for a spec pool with favorable characteristics. For example, low loan balance offers prepay protection in a falling rate environment. Other examples are FICO, LTV, certain state concentrations, program (rural, VA, FHA), servicer etc.
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Lol I’ve lurked around here since level 2. Now that I’m done studying I find myself bored.
whats the point of pricing speeds if P&I bonds all price at 100
They don’t all price at 100. Price changes with the level of interest rates, which has actually been volatile the last few months and should continue to be given the fed is set to hike rates soon.
in what interst rate scenarios would a p&i bond not be priced at 100.
you talking about wac caps and such?
For example right now the current mortgage rate is around 4% and 3.5% is what gets passed through to investors. Some older bonds that were issued when rates were higher and pass through 4% or 4.5% are priced around 106 and 108 respectively.
im talking about pricing scenarios at issuance not after issuance
Ok well you still need to factor in speed assumptions. Mbs can fall below par.