# PSA prepayment model

The **PSA Prepayment Model** is a prepayment scale developed by the Public Securities Association in 1985 for analyzing American mortgage-backed securities. The PSA model assumes increasing prepayment rates for the first 30 months after mortgage origination and a constant prepayment rate thereafter.^{[1]} This approximates real-world experience that during the first few years, mortgage borrowers:

- are less likely to relocate to a different home,
- are less likely to refinance into a new mortgage, and
- are less likely to make extra payments of principal.

The standard model (also called "100% PSA") works as follows: Starting with an annualized prepayment rate of 0.2% in month 1, the rate increases by 0.2% each month, until it reaches 6% in month 30. From the 30th month onward, the model assumes an annualized prepayment rate of 6% of the remaining balance.^{[2]} Each monthly prepayment is assumed to represent full payoff of individual loans, rather than a partial prepayment that leaves a loan with a reduced principal balance.

Variations of the model are expressed in percent; e.g., "150% PSA" means a monthly increase of 0.3% in the annualized prepayment rate, until the peak of 9% is reached after 30 months. The months thereafter have a constant annualized prepayment rate of 9%.

1667% PSA is roughly equivalent to 100% prepayment rate in month 30 or later.

## References[edit]

**^**"Calculation Standard Set on C.M.O. Yields".*The New York Times*. June 14, 1985.**^**Hayre, Lakhbir,*Salomon Smith Barney Guide to Mortgage-Backed and Asset-Backed Securities*(Wiley: 2001) ISBN 978-0-471-38587-5, p. 24.

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