In finance, a pool factor is the amount of the initial principal of the underlying mortgage loans that remain in a mortgage-backed security transaction. It is expressed as a factor of one that is used to indicate the remaining principal balance. Pool factors are only used to describe specific classes of securities, namely pooled

asset-backed securities An asset-backed security (ABS) is a security whose income payments, and hence value, are derived from and collateralized (or "backed") by a specified pool of underlying assets. The pool of assets is typically a group of small and illiquid asset ...

(ABSs) and

mortgage-backed securities A mortgage-backed security (MBS) is a type of asset-backed security (an 'instrument') which is secured by a mortgage or collection of mortgages. The mortgages are aggregated and sold to a group of individuals (a government agency or investment ba ...

(MBSs) whose component payments are returned to investors on a monthly basis. Pool factors are published monthly in the US for

Ginnie Mae The Government National Mortgage Association (GNMA), or Ginnie Mae, is a government-owned corporation of the United States Federal Government within the Department of Housing and Urban Development (HUD). It was founded in 1968 and works to exp ...

Fannie Mae The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise (GSE) and, since 1968, a publicly traded company. Founded in 1938 during the Great Depression as part of the N ...

, and

Freddie Mac The Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Freddie Mac, is a publicly traded, government-sponsored enterprise (GSE), headquartered in Tysons Corner, Virginia.face value The face value, sometimes called nominal value, is the value of a coin, bond, stamp or paper money as printed on the coin, stamp or bill itself by the issuing authority. The face value of coins, stamps, or bill is usually its legal value. Howe ...

of mortgage back security with the pool factor, we get the current face value.

Usage

Asset-backed securities An asset-backed security (ABS) is a security whose income payments, and hence value, are derived from and collateralized (or "backed") by a specified pool of underlying assets. The pool of assets is typically a group of small and illiquid asset ...

and MBSs typically contain issue terms that specify a method through which redeeming principal is shared among investors. When redemption is done

pro-rata ''Pro rata'' is an adverb or adjective meaning in equal portions or in proportion. The term is used in many legal and economic contexts. The hyphenated spelling ''pro-rata'' for the adjective form is common, as recommended for adjectives by some E ...

, a pool factor is useful to investors in cases of early repayment. Early repayment reduces the amount of

collateral Collateral may refer to: Business and finance * Collateral (finance), a borrower's pledge of specific property to a lender, to secure repayment of a loan * Marketing collateral, in marketing and sales Arts, entertainment, and media * ''Collate ...

available for an issue, and therefore some of the outstanding principal is returned to investors as stated in the issue terms. In this case, the pool factor is used to indicate how the remaining outstanding principal is adequately securitized.Choudhry, Moorad, et al. ''Capital Market Instruments: Analysis and Valuation''. Prentice Hall, 2002. Pg 183. .

References

Fixed income {{Finance-stub