A new research report from reverse mortgage securities trading player Cantor Fitzgerald aims to provide a “mythbuster” regarding the secondary market for reverse loans.
Looking at prepayment data from every fixed rate HMBS pool issued since 2008, Cantor reported several important findings Tuesday. First, it aimed to find the truth to the claim that there are no fixed standard HMBS pools that have ever paid at either zero or two hundred percent of the prepayment curve consistently over the life of the pool.
“On the surface, this statement sounds reasonably plausible, yet we still wanted to find out for ourselves,” writes Jeff Traister, Managing Director Mortgage Securities Group for Cantor Fitzgerald. “Pools that had paid very slowly had factors much greater than one and, inversely, fast pools had factors well below one. To find the most extreme prepay examples, we then filtered for the top ten slowest and fasted pools in our universe. After all the data was crunched, we occasionally found single monthly speeds at zero or two hundred percent of the prepayment curve but there were no instances where those levels were maintained.”
But an unexpected finding emerged from the data, Traister explains.
“Pools issued before April 2009 exhibited very little speed difference between the slowest and fastest pools,” he writes. “Pools issued after April 2009 exhibited very large speed differences between the slowest and fastest pools.”
What does this mean for investors?
Cantor presents three conclusions. First, fixed pools have not historically prepaid at either zero or 200% of the HECM prepay curve.
“A conservative investor should be comfortable using these two highly improbable speed paths for extreme fixed pool scenarios,” Traiser writes.
Second, low loan count was often a factor in pools that fell either in the slowest or fastest prepayment groups. Borrower age was not a factor. Finally, that home values may have impacted turnover rates, and that pools that have a specific concentration of loans from a particular geographic region may perform differently.
Written by Elizabeth Ecker
