Bought my first performing note at 77 cents and the exit at month 19 handed me 14.2% annualized, which I did not see coming

The assumption doing the most work in your base case was treating prepayment as a tail event when the borrower's equity position already made it probable. Six years of clean payment history on a 64% origination LTV almost certainly meant current LTV was well below 60% by the time you bought, which is standard refinance territory the moment rates or personal needs shift. The IRR lift you got is the mechanical result of recovering discounted principal early: you paid 77 cents, collected 7.5% on that basis for 19 months, then received close to par on exit. Time-weighted, that compresses your discount recovery into a short window and the annualized number rises sharply.

The risk you did not mention is the mirror scenario. A borrower with that equity cushion and clean history is also the borrower a servicer will have the easiest time handling if something does slip, so your collateral protection was strong. But the note you passed on to get to this one, or the next one you model, may have a borrower whose refinance access looks real on paper and turns out to be constrained by income or credit, which means you model a 24-month exit, price for it, and then hold to term or beyond. That is a good outcome if the yield-to-maturity still works at your bid, but it changes how you size the position relative to your liquidity needs.

Your forward adjustment is the right one. Running a 24-month payoff case alongside full term before setting the bid forces you to confirm the deal works at both ends of the distribution rather than just the slow end.

One question worth sitting with before you build the model: are you going to bid differently when the short exit is the good scenario, or only when it is the base case?