Public Securities Association - PSA

First, there was the Public Securities Association (PSA). The PSA was a trade association for primary dealers of U.S. government securities, i.e. bonds. And in the U.S., also mortgage-backed securities.

The PSA had a name change in 1997: The Bond Market Association. The association’s members represented a majority of U.S. municipal bond underwriters.

Then two became one: the Bond Market Association married the Securities and Industry Association. This Brangelina is known as SIFMA, the Securities Industry and Financial Markets Association. SIFMA is still a trade association, but it now represents a much wider base of brokerage firms and banks.

While the PSA has been long forgotten (for the most part), the PSA standard prepayment model has not. Back to its old-school mortgage-backed security roots, the PSA standard prepayment model adjusts the expected prepayment of a mortgage as it ages. Most homeowners don’t prepay, move, or refi during the first many years of having a mortgage. Later down the road though, prepayment is more likely. This is considered a risk for an investor, since prepaying the principal lowers the expected returns on the investment. Public service announcement (PSA) for mortgage-backed security investors: pay attention to the PSA for a real risk assessment.