With cash-out refinancing currently sky high, analysts reported last week that lower credit quality borrowers are increasingly using them as a vehicle to consolidate other higher interest loans - not only increasing prepayment speeds across coupons but bolstering the popularity of affordability mortgages as well.

Art Frank, head of mortgage research at Nomura Securities, said that in terms of prepayments, cash outs have an impact on current- and slight-premium-coupon speeds, as these borrowers often use their new mortgage as a debt consolidation vehicle or as a way to gain extra cash for other needs, such as a college education or home improvements. Additionally, slight-premium borrowers could move into a loan with a slightly lower rate, providing an additional incentive.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.