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Definition: Dealer-Median Prepayment Speed
‘Dealer Median Prepayment Speed’ gives the median value of the dealers for their pre-payment speeds, these dealers are mostly Wall Street securities dealers. So the speed estimates is the speed at which the payment is made for underlying mortgages used to form mortgage backed securities. These types of speed estimates are used many times by financial dealers like banks and other regulated enterprises so as to value and also to manage mortgage backed security profiles. But this type of speed estimates creates a concern among the regulators for its authenticity. So as a conservative estimates only these types of dealer median speeds are used.
So let us understand each word in detail to understand the meaning of the complete term. So Dealer, he is basically the person or entity who would deal in securities by investing in them, so that gains can be made by the changing trends of the securities in the stock exchange. So let us understand what Median means, it is basically the value that separates higher half of data sample, population and/or probability distribution from the lower half. And the word pre-payment speed signifies the speed at which or the time taken by a dealer to pay back for the securities.
Another aspect as to why this dealer prepayment speed estimate is important in the industry is because it is a very important measure as to how any mortgage borrowers will repay all of its mortgages. These type of speeds estimates are also important variable which can be used fo valuation and analysis of pre-paid mortgages.
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