JPMorgan Securities analysts, in their mortgage research, recommended that investors who are seeking call protection consider adding exposure to investment property MBS. They believe prepayment profiles should be similar to loan balance paper.
Recent prepayment history for 6% Gold 30-year 2007 vintages show the collateral has prepaid at around 30 CPR for the past three months, while investor loans have barely broke through 10 CPR, according to analysts.
"This level of call protection is more pronounced than low loan balance or single state collateral," they said, attributing the slower speeds to the tight lending standards, especially for investment properties.
Also making it difficult for these investors to refinance is the fact that while President Obama's Housing Plan might ease some of the credit constraints such as Freddie Mac's elimination of LLPA, it does not eliminate them.
They also noted that, at this time, some lenders are charging g-fees regardless of which agency is guaranteeing the loan. They expect this will ease up over time, but it will be a slow process. "As long as this kind of g-fee exists, investor property loans are basically non-refinanceable," they said.
While refinancing may be difficult, there are buyouts to contend with, although analysts don't see this as a huge risk. While there has been an utpick, especially in the recent Fannie Mae report, speeds were still lower than the cohort's. They cited a few reasons they believe will keep buyouts and involuntary prepayments staying lower versus the cohort.
The first is the Obama loan modification plan excludes investor loans, so borrowers are less likely to intentionally default. Another point they make is that the percentage of investment loans with negative equity is lower than the cohort.
They noted that, based on Freddie data, roughly 10% of agency investor loans are underwater. Because over 50% still have substantial equity suggests the impact from involuntary speeds should be manageable.
In conclusion, analysts said they favor 2006-2008 vintages. They added that 100% investor pools are hard to find, so they suggest finding pools and CMOs with high investor share.