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RMBS Prepayment Rates Down as Interest Rates Rise

According to Fitch Ratings' latest quarterly index, prepayment rates among U.S. residential mortgage-backed securities (RMBS) have declined to the lowest levels of the post-crisis era.

Fitch Ratings' director Sean Nelson attributed the decline in prepayment rates to higher interest rates and fewer distressed liquidations.

"Mortgage rates are up roughly 100 basis points from their historic lows in late 2012," Nelson said. "Borrowers not taking advantage of historically low rates may be unable to refinance their mortgages due to credit issues or lack of equity."

The conditional prepayment rate (CPR) for prime jumbo loans fells to 14.7 percent, while the rate for Alt-A loans fell to 10.3 percent.

The CPR for subprime loans fell to 8.8 percent in the first quarter of 2014. "Prime CPR is at the lowest level since early 2009, while Alt-A and subprime CPR are at or near all-time lows," Fitch said in a release.

CPR is made up of both voluntary and involuntary prepayments. Voluntary prepays are traditionally 90 percent of the all-in CPR figure. Fitch found that since the crash of the housing market, involuntary prepays, or liquidations of distressed loans, have made up an increasing share. Since 2009, the majority of non-prime CPR has been involuntary liquidations.

"Both voluntary and involuntary prepayment rates are likely to decline further if mortgage rates continue to rise and liquidation rates continue to fall as expected," Nelson said.

Fitch also announced that it has launched its first U.S. residential mortgage servicer snapshot. The report will contain key information for active RMBS servicers, including a description of all Fitch rated servicers, current servicer ratings, portfolio size per servicer, and analyst contact detail and links to full RMBS servicer reports.

The company said, "Notably, the snapshot will also provide the names of RMBS servicers currently assigned to transactions in an easy to use CUSIP reference format.  While the majority of active RMBS bonds are included in this published list, Fitch expects to continue to expand coverage."

About Author: Colin Robins

Colin Robins is the online editor for DSNews.com. He holds a Bachelor of Arts from Texas A&M University and a Master of Arts from the University of Texas, Dallas. Additionally, he contributes to the MReport, DS News' sister site.
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