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Paying penalty to break a mortgage term is not a pleasant experience. You have probably experienced the pinch once or twice during your homeownership.

It is interesting to see how the penalties decide pool types on mortgage backed securities.

The NHA mortgage backed securities guide speaks a volume about NHA backed mortgages as investments. The parts we shall look at are the mortgage pool type and how they are defined with respect to mortgage penalties.

Pool Types:

  • Prefix 964: Penalties paid to the pool investors.
  • Prefix 965: Prepayments are allowed.
  • Prefix 966: Closed to prepayments.
  • Prefix 967: Penalty retained by issuer.
  • Prefix 970: Penalties are passable to investors based on certain conditions – if occurs within 36 months.
  • Prefix 975: Penalties are passable to investors based on certain conditions – if occurs within 60 months.
  • Prefix 980: Adjustable rate. No penalty.
  • Prefix 985: Variable rate. No penalty.
  • Prefix 987: Floating – Variable or adjustable rate. No penalty.

So, technically the pools are either penalty based or variable/adjustable rate based.  A look at NHA Mortgage-Backed Securities – Daily Status says that the pool type 975 is the most popular pool. Obviously penalties paid within first 60 months are a sweet deal for the investors or issuers.

Now tell me why so many investors are interested in buying pool type 975?