Prepayment speeds rose across all loan types backing residential mortgage-backed securities in January, according to analysts at the Royal Bank of Scotland. Prepayment speeds are the average rate at which mortgage holders are expected to pay off the loan ahead of schedule. One risk MBS investors hold is that too many borrowers will pay ahead of time, cutting off investors from future coupon payments. On prime loans, prepayment speeds increased by 10 basis points on the 2005 vintage of loans from December to January and 9 bps on the 2004 vintage. Meanwhile, speeds on option-ARM loans came in flat. Alt-A and subprime vintages had mixed prepayment speeds, but were overall slightly higher than the previous month. “Given that mortgage rates have risen since mid-November, this month’s increase in prime speeds largely reflects the increase in day count (22 in January versus 20 in December),” RBS said. Write to Jon Prior. Follow him on Twitter: @JonAPrior
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