Info

-175-200

indicated that these characteristics were very useful in understanding historic and forecasting future credit and prepayment performance. In brief,

  • Higher OLTV loans tend to prepay more slowly because they suggest a more leveraged household and because borrowers have lower equity stakes and tend to default more frequently. Exhibit 3-18, which groups pools of 2003 Fannie Mae 5.5s by LTV ratio, suggests that the impact of LTV ratio is most pronounced in early months; as home price appreciation and paid-in equity lower current LTV ratios over time, the pools with high OLTVs appear to catch up.
  • Loan purpose disclosure would have been stronger if it distinguished between a rate refi (generally improves borrower credit, refinanceability) and a cash-out refi (generally increases leverage, lowers credit and refinanceability). Rate refis at historic lows in yield may indicate that borrowers are less willing to move as interest rates rise.
  • As originator/servicers have consolidated and become increasingly large national bank and mortgage banking entities, differences in refinancing activity (owing to marketing styles, operational efficiencies, concentrations of various channels of origination, etc.) have been discerned across servicers.
  • In general, the more pristine a borrower's credit, the more able he or she is to refinance subsequently. However, FICO changes monthly as borrowers add or retire new obligations and service existing ones; FICO at origination may not be a good indicator of FICO after origination.

EXHIBIT 3-18

Prepayments of 2003 Vintage Fannie Mae 5.5s by Original LTV Ratio

EXHIBIT 3-18

Prepayments of 2003 Vintage Fannie Mae 5.5s by Original LTV Ratio

CM O

o

o

o

o

o

o

o

o

O ffl O

ra 2

c

TO <

o ffl o

ra 2

o z

Was this article helpful?

0 0
Lessons From The Intelligent Investor

Lessons From The Intelligent Investor

If you're like a lot of people watching the recession unfold, you have likely started to look at your finances under a microscope. Perhaps you have started saving the annual savings rate by people has started to recover a bit.

Get My Free Ebook


Post a comment