March 11 (Reuters) - (The following statement was released by the rating agency) NEW YORK, March 11 (Fitch) 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. The credit quality of the prepaid loans has been, on average, only marginally better than the remaining loans. When compared with the remaining loans, those that have prepaid have slightly higher FICOs (774 vs. 771) and slightly lower loan-to-values (63% vs. 66%). As expected, the prepaid loans have higher coupons (4.8% vs. 4.4%) and have a higher concentration of adjustable-rate mortgages (25% vs. 6%). Fitch does not perceive the change in the credit risk of the remaining pools as material. This is supported by the continued strong performance of the remaining borrowers. Of the more than 6,000 prime loans securitized since 2010, only one loan is seriously delinquent as of the most recent reporting date. Additionally, any potential increase in credit risk caused by prepayments has been more than offset by an increase in credit enhancement percentage due to the transactions’ bond payment priority. The senior class credit enhancement percentage has more than doubled from the time of issuance for all transactions issued in 2010 and 2011. Prepayment rates for transactions issued between the start of 2010 and the middle of 2012 have remained notably high. That said, it appears unlikely that transactions issued in late 2012 and 2013 will experience similar prepayment behavior. While mortgage rates declined close to 140 basis points from early 2011 to July 2012, rates have remained relatively stable since that point. This has provided borrowers less incentive to refinance recently originated loans. The weighted-average coupons of the mortgage pools securitized in late 2012 and early 2013 are among the lowest in RMBS history. 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. This is particularly true for fixed-rate mortgages. Fixed-rated CPRs below 10% (like those observed in 1999 and again in 2006) could be experienced, potentially for a sustained period of time. A sustained period of slow prepayments could have credit implications for RMBS bonds. Prime RMBS structures typically distribute all unscheduled principal collections to the senior class during the first five years. After that, the principal distributions shift increasingly towards a pro rata share for subordinate classes. Slower prepayment rates during the initial five-year period result in increased exposure for the senior class later in the transaction’s life. Fitch considers this scenario in its rating analysis and will continue to focus on the credit implications of changing prepayment behavior as the market eventually transitions into a period of slower refinancing activity.