What is Spread at Origination (SATO)?
Spread at Origination (SATO) measures the credit spread embedded in a loan's note rate relative to the risk-free Treasury rate at the time the loan was originated. A high SATO indicates the borrower was charged a significant premium over risk-free rates, often reflecting weaker credit, higher risk, or less competitive origination. SATO is a key input for prepayment modeling: borrowers with high SATO are more likely to refinance if their credit improves, while borrowers with low SATO have less refinance incentive.
Formula
SATO = Note Rate - Treasury Yield at Origination Where Treasury Yield is interpolated at the loan's original term (e.g., 30Y Treasury for a 30-year mortgage)
How LoanBook Uses Spread at Origination
LoanBook calculates SATO automatically by looking up the historical Treasury yield at each loan's origination date. Values are cached per-loan to avoid redundant API calls. SATO feeds into the Prepay Model's refinance incentive calculation and is displayed in portfolio analytics.
Frequently Asked Questions
Why is SATO important for prepayment modeling?
SATO reveals how much room a borrower has to improve their rate. A borrower with 200bp SATO originated in a high-rate environment has significant refinance incentive if rates drop or their credit improves. A borrower with 50bp SATO is already near risk-free rates and has little incentive to refinance.
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