PSA Prepayment Model is a prepayment model by the Bond Market Association

Bond Market Association

The Bond Market Association was the international trade association for the bond market industry. It had headquarters in London, New York City, and Washington D.C. Twenty per cent of the membership was located outside of the US, while 70 per cent was located outside New York City...

 formerly known as Public Securities Association or PSA that assumes increasing prepayment rates for the first 30 months of the lifetime and constant rates thereafter. Real world experience shows that during the first few years, borrowers:

1. are less likely to move to a different home,
2. are less likely to refinance, and
3. are too strapped financially to allow for additional payments.

The standard model (also called "100 percent PSA") works as follows: starting with an annualized prepayment rate of 0% in month 0, the rate will increase by 0.2% each month, until it peaks at 6% after 30 months. From the 30th month on the model assumes an annual conditional prepayment rate of 6%.

Variations of the model are expressed in percent, e.g., a 150% model means a monthly increase by 0.3%, until the peak of 9% is reached after 30 months. The months thereafter will have a constant annual prepayment rate of 9%.

1667 PSA is roughly equivalent to 100 CPR.