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I just started working in the MBS space and have a few questions about nomenclature. I've seen the terms "Unpaid Balance", "Collateral Balance", "Original Balance", "Current Balance", "Deal Balance", etc. From my understanding:

"Deal Balance" is the amount of principal that's remaining to be paid down on the MBS deal.

"Current Balance" = "Deal Balance"

"Original Balance" is the amount of principal to be paid down on the deal at inception of the deal.

"Collateral Balance" = This value seems to be different from "Outstanding Balance" (which I assume is equal to "Deal Balance") I believe its the same as Unpaid balance and is the amount of collateral thats being referenced by the MBS. I dont know if this is right?

Usually, when they refer to balance I assume they're referencing the deal balance but am not sure. Can I please get some help with understanding this terminology.

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    $\begingroup$ Can you reference a specific example? Generally speaking, "Deal" is just market jargon for a CMO (collateralized mortgage obligation). The different bonds in a CMO receive their cash flows based on payment rules that redirect the cash flows of the underlying pass-through mortgage pools. It is important to distinguish between the bond balance (the principal backing the bond) and the collateral balance (the MBS pools backing the bond). The two balances are generally not equal: the collateral itself can be segmented into different "groups", each of which feed a different bond. $\endgroup$
    – Sharad
    Commented Oct 8, 2020 at 21:34
  • $\begingroup$ @Sharad Thank you very much for the answer. For example, I've across these different names for Balance in our internal database tables and the Intex mortgage application. When I look at the Intex mortgage application I see that theres columns called "collateral balance" and "outstanding balance" for example. And in other databases theres columns called "Current Balance", "Original Balance". So, its just a bit confusing at this stage as to whats being referred to...... $\endgroup$
    – Jojo
    Commented Oct 9, 2020 at 11:50
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    $\begingroup$ No -- I didn't mean to say that, those terms are interchangeable but they can be used to define bond balances or collateral balances. Tracking/projecting bond balances gives you some sense of the investment profile of the bond in question. Tracking collateral balances gives us a sense of the prepayment behavior of the underlying MBS pass-through pools. Of course, this prepayment behavior helps define the prepayment risk associated with the bond in question, depending upon the payment rules that link the collateral cashflows to the bond cashflows. $\endgroup$
    – Sharad
    Commented Oct 9, 2020 at 20:36
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    $\begingroup$ See pp. 1-8 of the following paper for example: link $\endgroup$
    – Sharad
    Commented Oct 9, 2020 at 20:39
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    $\begingroup$ Yes: CPRs can only be calculated from collateral balances. By "Tracking/projecting bond balances" I meant looking at the cash flow profile of the bond which will depend upon payment rules and the prepayment forecast. $\endgroup$
    – Sharad
    Commented Oct 10, 2020 at 22:06

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I will list here few of these for you:

  1. Deal balance: usually refer to current balance of deal or rather current balance of underlying collateral in a deal. A deal can have many different collateral groups. This will be sum of current balance of all underlying collateral groups.
  2. Deal closing balance: balance of deal (all underlying collateral) at the time of closing of the deal
  3. Current balance: It is UPB (unpaid balance) of underlying collateral
  4. Cut-off balance: It is UPB of collateral as of a specific date (usually month ends or remittance dates)
  5. Interest paying balance: Overall balance may include an amount that was deferred and is not expected to pay any interest. Thus, interest paying balance is split out and referred to as interest paying balance.
  6. Deferred balance: Balance that was deferred by servicers i.e. borrower needs to pay this amount eventually but not interest will be charged on it. For example, lets say on 250k mortgage got modified when it became delinquent. Servicer worked with borrower and changed terms of his mortgage so that he/she needs to pay interest only on 230k instead of 250k. 20k is now referred to a deferred balance.
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