Prepayment Update - Jan. '08

A Look at Non-Agency Mortgage Prepayment Speeds
by Sanjeeban Chatterjee

In this article we look at prepayment speeds for non-agency loans to study some of the effects that we observed in 2007. It is common knowledge that prepayment speeds for prime and sub-prime loans have slowed down. This article shows the magnitude of the slowdown and some interesting trends.

We obtained data for this study from Intex. The prepayment speeds indicate total terminations, which include voluntary and involuntary prepayments. Prepayments are recorded whenever the balance becomes zero regardless of the reason.

In Chart 1 we see that speeds for non-agency prime 3/1 hybrids were flat during most of 2006. The 2004, 2005 and 2006 vintages all prepaid in the 20 – 30 CPR range. However, speeds started declining from about March 2007 and were in the 10 – 20 CPR range for pretty much all of 2007. Also, the peak reset speed for the 2004 vintage was in the 80 CPR range in mid-2007. This shows that borrowers of this vintage still had better opportunities of refinancing into other loans during reset. This was probably because these are borrowers with good credit, and they had some equity built into their homes.