Mortgage-backed Prepayment Research And Treatment

Mortgage-backed Securities, as a financial innovative product, has been developed rapidly in developed countries. This important derivative product has become remarkable focus in financial field. The first mortgage-backed securities product "Jianyuan 2005-1" was a pilot securities issued by the Construction Bank of China to the Inter-Bank Bond market, with the CITIC Trust as the trust institution. However, precise cash flow prediction becomes the most important issue on promoting mortgage securitization, which is directly influenced by the mortgage prepayment. So this paper takes the mortgage prepayment and treatment as the research object.Taking the value and prepayment impact on mortgage as the main theme, this paper puts forward how to predict and manage the prepayment by further understanding its characteristics. Firstly, it analyzes the present situation of prepayment home and abroad, points out the factors that affect mortgage prepayment, and compares differences between domestic and international payments. Secondly, it proves the reasonableness of imposing penalty, which has been widely used abroad to make up for the losses to bank. In May 2002, eight banks in Shanghai jointly announced to bring out penalty of prepayment, which caused much dispute. Is the collection of penalty practicable? This paper proves the reasonableness of colleting penalty by analyzing whether it should be imposed by banks to borrowers or other banks. Thirdly and the most importantly, it proposes differential penalty pricing by quantitatively illustrating the loss range caused by prepayment to commercial banks, and impact caused at different time and place. It predicts future cash flow through empirical model, and gives methods to effectively prevent the advance payment.