How Do Mortgage-Backed Securities Price?
Mortgage-backed securities can be very complicated. That’s because mortgage-backed pools have several components that must be included in Date-of-Death and Alternate Date valuations. Variables in mortgage-backed securities include the market value of the remaining balance, interest accruing throughout the current interest period, any accrued principal from prior months and any accrued interest from prior interest periods. Also, careful consideration of principal payments between the Date-of-Death and the Alternate Date is required for Alternate Date valuations. Our EstateVal takes into account all of these components. Pay down factors are reported as a percentage of the original face value (e.g. a factor of 0.911448605). This factor is multiplied by the face value to obtain the remaining principal, which, in turn, is multiplied by the mean price to obtain the value of the security. The formula is: Value = Face Value x Factor x (Mean Price 100) Accrued interest is reported on a 30/360-d
