In finance, what is a pool factor? (with photos)

The pool factor is the proportion of the balance of a particular type of security that has not yet been returned to the investor.

The pool factor is the proportion of the balance of a particular type of security that has not yet been returned to the investor. The figure is used only for specific types of asset-based and mortgage-backed securities. The pool factor can serve as an indicator of how much collateral remains on these bonds.

An asset-based security is one where the holder receives income from the assets that make up the security. This is usually a collection of various small assets that an investor would not normally want to acquire individually. In turn, most of these bonds are bundled, meaning they are split among multiple investors.

Some banks bundle several mortgages into a package for sale to an investor.

The most well-known type of security is the mortgage-backed security. This is when investors buy the rights to receive the payment proceeds from mortgage holders. Banks will pool several mortgages in this way and sell the rights to receive payments. Typically, investors will pay less for the bond than the total income they should eventually receive. Of course, they also run the risk that some mortgage holders won’t make their payments.

The most well-known type of security is the mortgage bond, in which investors buy the rights to receive the income from payments from mortgage holders.

The pool factor simply indicates how much of the original loans covered by the bond have not yet been repaid. The factor is displayed as a ratio of 1, similar to a baseball hit rate. This means, for example, that if half of the total amount has not yet been refunded, the pool factor is listed as 0.500. Multiplying the pool factor by the original pool balance will show you how much remains to be paid.

See also  What is a joint stock commercial bank? (with photo)

In the United States, a pool factor is published each month for mortgage-backed securities of Ginnie Mae, Fannie Mae, and Freddie Mac. These are government-backed companies that issue the majority of mortgage-backed securities. Government support provides some degree of assurance that investors will be paid.

There are several uses for the pool factor. One is to let potential investors know how much “value” is left in a given stock in the pool. This can help them assess a fair price if they want to buy another investor’s stock.

Another use of the pool factor is to take into account loan collateral, particularly mortgage-backed properties. If the factor is lower at any particular stage than would normally be expected, this may indicate that there has been a faster repayment of the mortgages. In turn, this increases the likelihood that some mortgages have been fully repaid. This would reduce the number of properties covered by the pool and therefore increase the proportionate risk posed if any mortgage holder defaults on their payments.

Leave a Comment