Prime borrowers whose loans are making up the small number of private mortgage-backed securities pools issued since the start of 2010 are prepaying at rapid rates as they are attracted by lower interest rates to refinance, according to Fitch Ratings.
But the good news, said Fitch managing director Grant Bailey, is that “stable mortgage rates are making refinancing less attractive to the newest mortgage borrowers, which should keep
In February, the private-label securities issued since 2010 reported an average conditional prepayment rate of approximately 42%, which is more than twice as fast as the rates of outstanding prime loans securitized in earlier vintages.
“The elevated prepayment rates have resulted in rapid declines to the mortgage pool balances. In fact, only 12% of the original balance of the sole transaction issued in 2010 remains outstanding today. Additionally, pool balances for both transactions issued in 2011 have paid down to less than half their initial amounts,” Fitch said.
For the investors in those private-label securitizations, the news is also pretty good. The loans which have prepaid have slightly higher FICOs (774 vs. 771), slightly lower loan-to-values (63% vs. 66%), a higher coupon (4.8% vs. 4.4%) and have a higher concentration of adjustable-rate mortgages (25% vs. 6%).
Taken together, this means the credit characteristics of the remaining loans should be high.
In fact, Fitch noted that “of the more than 6,000 prime loans securitized since 2010, only one loan is seriously delinquent as of the most recent reporting date.”
Supporting Bailey’s statement regarding the
Furthermore, the weighted average coupons in the late 2012/early 2013 securitizations are the lowest all-time for RMBS, the ratings agency claimed.
“As such, it is possible that mortgage borrowers from that period never experience strong rate refinance incentives. Even a relatively modest increase in mortgage rates from today's levels could result in relatively slow prepayment behavior,” Fitch said.
