What is the pool factor?
The pool factor describes the remaining balance of principal debt left to be repaid on a pool of mortgages. It is expressed as a proportion of the total original sum that was lent.
Where have you heard about the pool factor?
As an investor, you may have come across the pool factor in relation to investment opportunities in mortgage-backed securities. Investment guides may mention the pool factor, as may your financial adviser.
What you need to know about the pool factor.
Pooled mortgage-backed securities offer investors the chance to buy the right to a stream of mortgage payments, which are distributed to those investors at regular intervals until all the mortgages in the pool have been paid off. Investors with an interest in such a mortgage-backed security will want to know how much remains to be repaid before they commit themselves, because the value of the remaining payments is a key factor in deciding what price investors are prepared to pay. Assume that an investor is offered a security that, originally, entitled the holder to principal repayments of £150,000, and there is an outstanding balance of £80,000, dividing £80,000 by £150,000 gives a pool factor of 0.5333.
Find out more about the pool factor.
The pool factor is a number describing the outstanding balance on mortgage-backed securities issued by major home-loan lenders. Learn more about two of them here, Fannie Mae and Freddie Mac.