Correspondent Blog
Tag: Prepayment Speeds
07/22/24
Why Commercial Loan Prepayment Speeds Matter
The biggest surprise for bank managers using risk-adjusted return on capital (RAROC) loan pricing models is the low return on equity (ROE) on smaller, shorter, and lower-credit quality commercial loans. Those ROEs tend to subtract substantial value from the bank and show negative returns – sometimes in the negative double digits. However, one aspect that…