In addition, tests on live portfolios show significant improvement in the accuracy of prepayment speed
Under all prepayment speed
scenarios, the cash flows demonstrate that the assets in the indenture are sufficient to make debt service payments throughout the term of the bonds.
When interest rates are falling, homeowners tend to pay off their mortgages early (usually by refinancing at a lower rate), causing the prepayment speed
to be faster than expected.
But equity researchers from several large brokerages have been studying prepayment speed
behavior for several years, and my reading of their findings thus far indicates there is no correlation between prepayment speeds
and the amount of servicing fee on a loan.
Marketswitch's technology, which has been licensed exclusively to OptiFI, merges household-level behavioral analysis with financial security pricing technology to unlock the value of understanding the effect of unique customer attributes on prepayment speed
, according to Fair, Isaac and Marketswitch.
The ratio of the prepayment speed
for each state cluster to the national average for its coupon/origination cohort was calculated.
The aggregate 30 year Fannie Mae prepayment speed
rose 34% to 23.
The average prepayment speed
for the state of California stood at 10.
Changes to the prepayment speed
estimates are applied to the level-yield calculations as if the revised estimates had been in place since the origination of the loans and inception of the securitization debt.
The prepayment speed
on MFA's MBS portfolio averaged 32% Constant Prepayment Rate ("CPR") during the second quarter of 2004.
As all mortgage servicers know, it does not matter what single prepayment speed
is used, but how the prepayment speeds
are expected to change as interest rates change.
As a result, the class A-2L notes are highly sensitive to the prepayment speed
of the underlying collateral, whereby the longer the class A-2L notes remain outstanding, the more principal proceeds can be used to pay class B interest before flowing through to pay the A-2L principal.