What it means
A mortgage-backed security (MBS) is created when many home loans are gathered into a pool and investors buy shares of the cash flow from the borrowers' payments. Each pool needs a name so that everyone can refer to the same set of loans.
That name is the pool number. In the United States, the main agencies that guarantee or issue these securities, such as Fannie Mae, Freddie Mac and Ginnie Mae, assign pool numbers when the pool is formed.
The number is often paired with a CUSIP, which is a standard nine-character securities identifier used in trading and settlement. Together they allow the pool to be tracked from issue to final payment.
The pool number matters because pools differ. One may hold loans of a particular size, interest rate, age or region, and those characteristics affect how fast borrowers repay and how the security behaves.
Investors who buy a specified pool know precisely what they are getting, while those trading to-be-announced contracts agree on general features and only learn the pool numbers shortly before delivery. Finance teams at banks, insurers and asset managers use pool numbers in their records to reconcile holdings and report balances.
Auditors use them to confirm ownership and valuation of securities. The numbers also help match the monthly principal and interest payments, which arrive from the servicer and shrink as the loans are repaid.
The pool number identifies the pool but does not describe its quality on its own. To judge risk, an investor must look up the pool's disclosure data, including loan counts, balances, interest rates and prepayment history.
A single mistyped digit can point to the wrong pool, so accurate recording is part of good controls. Pools also change over their life.
As borrowers repay or refinance, the remaining balance falls, and the share still outstanding is often shown as a pool factor, a decimal between 0 and 1. Investors multiply the original face amount by the current factor to find what is still owed on their holding, and the pool number is the key that finds the right factor each month.
In practice
Real-world examples.
Example
A bond operations clerk at an insurance company receives a trade confirmation for a mortgage security. She matches the pool number and CUSIP on the confirmation to the company's records before approving settlement. A mismatch would signal that the wrong security had been bought.
Example
A portfolio manager wants exposure to mortgages on smaller loan balances, which tend to prepay more slowly. He asks the trading desk for specified pools whose disclosure data show low average loan sizes. The pool numbers let him review each candidate before buying.
Example
An auditor testing a bank's securities holdings requests a list of pool numbers and compares them with the custodian's statements. Every pool on the list has to agree with the custodian's records for the balance and owner. She reports a difference on one pool as an exception for follow-up.
Case study
Seen in the real world.
Redwood Mutual is an illustrative, fictional insurance company that held a portfolio of mortgage securities. During a year-end reconciliation, its accounting team found that the valuation system listed a pool with a balance $2,300,000 higher than the custodian's statement. Both records were meant to describe the same holding.
A review of the pool numbers revealed that two digits had been transposed when a trade was keyed in, so the system was pricing a different pool, one with a larger remaining balance. The correct pool number was entered, the balance matched and the valuation was corrected.
The illustrative lesson is that pool numbers act as the account number of the underlying loans, and strong data entry checks can prevent errors that distort valuations and financial statements.
Watch out
Common mistakes.
- Treating the pool number as a measure of quality, when it is only an identifier and the risk must be assessed from the pool's disclosure data.
- Mixing up the pool number and the CUSIP, which serve different purposes even though they are often quoted together.
- Assuming a pool's balance stays constant, when it falls every month as borrowers repay principal.
Questions
People also ask.
What is the difference between a specified pool and a to-be-announced trade?
In a specified pool trade the buyer knows the exact pool number in advance, while in a to-be-announced trade only general features are agreed and the pools are assigned shortly before settlement.
Who assigns the pool number?
The agency or issuer that creates the security assigns it when the pool is formed, according to its own numbering conventions.
Where can an investor find the details behind a pool number?
The issuing agency publishes disclosure data for each pool, and market data vendors and custodians also show the loan count, balance, rate and prepayment history.
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