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April 21 (The following statement was released by the rating agency)
Prepayment rates among U.S. RMBS loans have declined to the lowest levels of the post-crisis era, according to Fitch Ratings in its latest quarterly index.
The conditional prepayment rate (CPR) for prime jumbo, Alt-A and subprime loans fell to 14.7%, 10.3% and 8.8%, respectively, 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. Higher interest rates and fewer distressed liquidations are contributing to the slower prepayments, according to Director Sean Nelson. 'Mortgage rates are up roughly 100 basis points from their historic lows in late 2012,' said Nelson. 'Borrowers not taking advantage of historically low rates may be unable to refinance their mortgages due to credit issues or lack of equity.'
CPR is comprised of both voluntary and involuntary prepayments. Voluntary prepays have traditionally made up roughly 90% of the all-in CPR figure. However, since the crash of the housing market, involuntary prepays (liquidations of distressed loans) have made up an increasing share. Since 2009, the majority of non-prime CPR has been involuntary liquidations. Only about a third of Alt-A and a fifth of subprime CPR has been voluntary.
'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,' said Nelson.
Fitch's index is published quarterly and highlights performance trends in legacy and new issue RMBS, house price conditions and mortgage market developments. Fitch's CPR index measures the annualized unscheduled prepayment rate among U.S. private label, securitized mortgage loans.
The Mortgage Market Index -U.S.A. is part of Fitch's of quarterly structured finance index reports. It is available at 'www.fitchratings.com' or by clicking on the above link.