Prepayment risk makes pass-throughs unattractive for certain financial institutions to hold from an asset/liability perspective.

Question

Quizplus · Accepted Answer

Prepayment risk, which is the risk that borrowers will pay off their loans earlier than expected, can disrupt the cash flow and yield projections for financial institutions holding pass-through securities, making them less attractive from an asset/liability management perspective.

Prepayment Risk Makes Pass-Throughs Unattractive for Certain Financial Institutions to Hold