Benchmark that expresses mortgage prepayment speed as a percentage of a standard seasoning-based CPR path.
The PSA prepayment model is a market convention that expresses mortgage prepayment speed as a percentage of a standard seasoning-based conditional prepayment rate path.
The PSA model matters because mortgage investors need a common shorthand for comparing prepayment assumptions. Instead of listing a separate annualized rate for every loan age, analysts can describe a scenario as 50%, 100%, 200%, or another percentage of the benchmark path.
For borrowers, the term connects collective refinance, sale, and payoff behavior with MBS analytics. Borrowers do not choose a PSA speed, and the model does not restrict their contractual prepayment rights.
Borrowers usually do not encounter PSA language in consumer mortgage documents. It appears in MBS analytics, prepayment modeling, and investor discussion.
The term becomes practical when explaining how analysts compare mortgage pools and how prepayment expectations affect Average Life, Prepayment Risk, and MBS pricing.
At 100% PSA, the annualized CPR starts at 0.2% in month 1, rises by 0.2 percentage points each month, reaches 6% in month 30, and remains at 6% thereafter:
Other PSA speeds scale that benchmark:
| Loan age | 100% PSA | 200% PSA |
|---|---|---|
| Month 1 | 0.2% CPR | 0.4% CPR |
| Month 10 | 2.0% CPR | 4.0% CPR |
| Month 30 and later | 6.0% CPR | 12.0% CPR |
The model is a convention, not a forecast. Actual pools do not prepay in a smooth ramp, and two pools with the same average PSA speed can have different month-to-month behavior.
| PSA wording | Plain-language idea |
|---|---|
| Slower than benchmark | Borrowers are expected to prepay less quickly |
| Benchmark speed | Prepayments are modeled at a standard reference pace |
| Faster than benchmark | Borrowers are expected to prepay more quickly |
An analyst models a seasoned mortgage pool at 200% PSA. Because the loans are older than 30 months, the scenario uses 12% CPR, twice the 6% CPR plateau under 100% PSA.
The resulting average life is shorter than under a 100% PSA scenario, but neither scenario promises what borrowers will actually do.
The PSA model differs from Conditional Prepayment Rate because CPR is a prepayment-speed measure, while PSA is a benchmark convention for comparing assumed speeds.
It also differs from Single Monthly Mortality. SMM is a monthly prepayment measure. PSA is a broader market convention used to express prepayment assumptions.
It also differs from Prepayment Risk. Prepayment risk is the exposure to unexpected early payoff. The PSA model is one way analysts communicate prepayment assumptions.
It also differs from a Pooling and Servicing Agreement, which shares the acronym PSA but is a transaction-governing document rather than a prepayment model.