FNMA pools

[crawfordn]

Hi Mark,
I just transferred in an account with several FNMA pools. The pricing coming from Schwab is correct, but there seems to be no way to adjust for the factor of the pool. In other words, these have a face value of say 10,000 and a price of 101, but they should be multiplied by a factor (that does come with the Schwab price) to adjust for the principal that has already been returned . Any suggestions on how to deal with these? Thanks, Rick

[Mark]

Hi Rick,

The market value of any investment is always the number of shares owned times the market price. There is no additional factor available to use, so you have to either adjust the price or shares. I'm not sure which method is most appropriate for this investment type. Where are you seeing this factor from Schwab?

[crawfordn]

That's what I used to think, but the factor is included with the security name and changes monthly as principal is paid back to the holder. The market value is the original face times the price times the factor. I can email you an explanation from FINRA.

[Mark]

Hi Rick,

It sounds like the best thing to do would be change the shares, and not the price. You have to change one to include the factor. Since the security is changing names each month, you could either transfer or sell/buy shares, but a simpler solution might be to simply record a split each month to change the number of shares you own. Record the split at a ratio that gives you the desired number of new shares, so that:

FM_shares * Price = Broker_shares * Factor * Price = Market_Value

[crawfordn]

That's pretty much what I came up with as well. I did send you a description of the securities by email for your edification. Thanks, Rick