Prepayment Analysis of Residential Mortgage Backed Securities for Indian Securitization Market
24 Pages Posted: 6 Feb 2008
Date Written: February 3, 2008
Residential Mortgage Backed Securities are gaining momentum in India, as the same are likely to be listed and traded in public domain. This has prompted the analysis of different aspects of pricing its products. Various risk elements control the prices of these products and prepayment is one of the most critical of them. This paper attempts to identify and analyze two factors i.e seasonality and seasoning, contributing to the prepayment risk associated with the residential mortgage backed securities in Indian market where the underlying asset is based on retail housing loans to the individuals in India. The data collected pertained to existing pools securitized in recent past. Unlike the pattern observed in the developed economies, this study indicates that the prepayment does not significantly change in different months or seasons of a year. However, the ageing of pools (seasoning) has significant impact on prepayments, which is in consonance with the developed economies. The prepayments have shown a declining trend with age.
Keywords: Prepayment, Securitized Instruments, Residential Mortgage Backed Securitization
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