Re­fi­nanc­ings high on US mort­gages

The Pak Banker - - COMPANIES/BOSS -

Prime mort­gage bor­row­ers in U.S. RMBS pools is­sued since the start of 2010 are still pre­pay­ing at rapid rates, re­flect­ing the re­fi­nance in­cen­tives driven by low mort­gage rates, ac­cord­ing to Fitch Rat­ings.

His­tor­i­cally, high re­fi­nance ac­tiv­ity has left poorer qual­ity bor­row­ers in mort­gage pools, which in turn has in­creased per­for­mance volatil­ity. For re­cent RMBS, how­ever, the credit im­pli­ca­tions have been mod­est to date due to the high over­all credit qual­ity of the orig­i­nal pools.

Last month, prime RMBS mort­gage pools is­sued since 2010 re­ported an av­er­age con­di­tional pre­pay­ment rate (CPR) of ap­prox­i­mately 42%. This 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.

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