The Public Securities Association (PSA) prepayment benchmark assumes that the monthly prepayment rate for a mortgage pool increases as it ages (becomes seasoned). The PSA is expressed as a monthly series of Conditional Prepayment Rates (CPRs). The model assumes that:

• CPR = 0.2% for the first month after origination, increasing by 0.2% every month up to 30 months; and
• CPR = 6% for months 30 to 360

A mortgage pool whose prepayment speed (experience) is in line with the assumptions of the PSA model is said to be 100% PSA. Similarly, a pool whose prepayment experience is two times the CPR under the PSA model is said to be 200% PSA (or 200 PSA).

Choice A is incorrect. The PSA prepayment benchmark does not assume that the monthly prepayment rate remains constant for the first 30 months and then increases by 0.2% for months 30 to 360. Instead, it assumes that the rate increases by 0.2% every month up to the first 30 months.

Choice C is incorrect. The PSA model does not assume a decrease in the monthly prepayment rate over time, but rather an increase of 0.2% each month until it reaches a certain point (usually around month 30).

Choice D is incorrect. Similar to choice A, this option incorrectly assumes that the monthly prepayment rate remains constant for an initial period and then decreases afterwards, which contradicts how the PSA model works.