Source: eMBS Inc. Reproduced with permission.

likely to respond to that level of rates. Prepayment rates begin to slow. This effect can be seen in the 2003 vintage 5.5s in Exhibit 3-15. Likewise, pass-throughs that have been heavily refinanced in past rallies tend to respond more sluggishly to subsequent refinancing opportunities. A better indication of the refinancing path experienced by a pass-through is origination year and coupon; experienced market participants will remember how many times conventional 6s of 1998 have been refinanceable. Finally, the factor is a good indicator of cumulative refinancing events. The factor is the fraction of original principal that is still outstanding. This is reported on the pool level monthly and calculated on an aggregate basis for coupon and by origination year within coupon by market participants. In the absence of prepayments, a 5% coupon would have a factor of approximately 0.9966 two years after origination; by contrast, just 77% of the original principal amount of aggregate Fannie Mae 5s of 2002 was outstanding as of February 1, 2005, implying a factor of around 0.7700.

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