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Pool Factor

The pool factor is a measure used to indicate the remaining principal balance of a mortgage-backed security (MBS) or asset-backed security (ABS) relative to its original balance. It is expressed as a percentage, showing how much of the original principal is still outstanding. As borrowers make payments on the underlying loans, the pool factor decreases. This metric is crucial for investors in MBS and ABS markets as it helps them understand the remaining value of their investment.

Example

If a mortgage-backed security originally had a principal balance of $1 million and now has $800,000 outstanding, the pool factor is 0.8, or 80%.

Key points

• Measures the remaining principal balance of a mortgage-backed security.

• Expressed as a percentage of the original principal balance.

• Decreases as borrowers make payments on the underlying loans.

Quick Answers to Curious Questions

It helps investors understand how much of the original investment remains and allows them to assess the value and potential cash flows of the security.

The pool factor decreases as the principal on the underlying loans is paid down through scheduled payments or prepayments.

A low pool factor indicates that a significant portion of the principal has already been repaid, reducing the remaining cash flow potential.