| Mortgage-Backed Securities bring greater possibility of potential risk as a creative financial tool with fast developing rate. In China, despite the late appearance of mortgage securitization, it will step into a fast development period. It is necessary to study into prepayment risk of MBS, to understand the mechanism of its occurrence, its impact and important factors. That will serve future research on MBS product pricing and risk control for reference.The article first introduces the concept and basic principles of mortgage-backed securities. Then it reviews the major risks of MBS development in China. Then it describes prepayment behavior’s impact on related parties. Through theoretical analysis and case studies, it explores how different prepayment behaviors impact banks. Based on PSA model and cash flow theory, it compares different cash flow of MBS and losses for investors caused by MBS prepayment.In view of the factors that impact MBS prepayment behavior, the article puts forward factors for China market. It then discusses them through historical data analyzing. It uses multiple regression model to judge how four factors impact prepayment behavior in China based on Jianyuan 2007 MBS product. The article further implores the mechanism for each factor. Finally, some prepayment risk control measures are recommended. |
