What Does Current Face Mean?

Current face refers to the current par value of a 澳洲幸运5开奖号码历史查询:mortgage-backed security (MBS). It reveals the remaining monthly 澳洲幸运5开奖号码历史查询:principal on a group of home 澳洲幸运5开奖号码历史查询:mortgages, providing 澳洲幸运5开奖号码历史查询:investors with a snapshot of how an MBS, the vehicle collecting on these loans,&n🧜bsp;is doing compared to when it started out💧.

Current face is also referred to as current 澳洲幸运5开奖号码历史查询:face value.

Understanding Current Face

Mortgage-backed securities (MBSs) are home loans that are sold by the banks that issued them to a 澳洲幸运5开奖号码历史查询:government-sponsored enterprise (GSE) or financial company. The buyers then bundle these mortgages together into a single investable security, paying out the principal and interest that they generate to the holder, usually on a monthly basis.

When an MBS is initially structured, the par value given to the pool is called the 澳洲幸运5开奖号码历史查询:original face. Simply put, the original face is the total outstanding principal balance at issue, while the current face is th𓂃e total outstanding principa💃l value at any point thereafter. Naturally, as payments come in and the principal of the underlying mortgages in the pool is paid down, the current face declines compared to the original face.

MBSs with the same issue date, coupon, and original face value can have greatly different current 🃏faces because they p💃ay down at different rates based on the characteristics of the underlying loans.

For example, the pool may be made up of borrowers of high 澳洲幸运5开奖号码历史查询:creditworthiness who can 澳洲幸运5开奖号码历史查询:refinance easily if 澳洲幸运5开奖号码历史查询:interest rates drop. Moreover, even if the borrowers are roughly equivalent in terms of 澳洲幸运5开奖号码历史查询:credit rating, differences in the 澳洲幸运5开奖号码历史查询:prepayment speed of underlying mortgages will impact the ⛎current face.

Calculating Current Face

Current face is calculated by multiplying the current 澳洲幸运5开奖号码历史查询:pool factor, a measure of how much of the original loan principal remains, by the MBS's original face value. A newly issued MBS will have a pool factor of one at inception. Thꦛis will change over time, moving downward as the mortgages are ste🐲adily paid off.

Special Considerations

Holders of MBSs want to see the underlying mortgages repaid, as that is where they get their principal and interest on the 澳洲幸运5开奖号码历史查询:investment from. At the same time, for the MBS to live up to its poteജntial, it is important that the current face doesn't fall faster than planned.

When the pool factor drops quicker than expected, it results in investors generating a lower overall return than they had previously hoped for. That's because part of the income that MBSs generate comes from interest payments on the underlying mortgages. In short, the more the homeowners still owe, the more interest they must fork out to the lender—in this case, the holder of the MBS.

Prepayment is one of the biggest risks that MBS holders face. Borrowers tend to refinance when interest rates fall and the cost to borrow money is cheaper. This is undesirable for investors. Aside from not collecting all the income they expected to receive, it also means that capital is returned to them in a low-interest environment where yields are hard to come by.

Benefits of Current Face

By looking at the current face, an investor can check the 澳洲幸运5开奖号码历史查询:valuation assumptions that were made when the MBS was created. This leads to questions such as whether or not the assumed 澳洲幸运5开奖号码历史查询:prepayment rate was accurate and whether the valuation is higher or lower than it should be in light of the actual 澳洲幸运5开奖号码历史查询:prepayment risk to date.