In recent research, Lehman Brothers analysts examined the effect of FICO on prepayments. They concluded that low FICO pools display faster discount prepayments, which is driven by their greater sensitivity to house price appreciation, and, to a lesser extent, by higher defaults. Low FICO loans are also less callable, although the difference narrows over time. Analysts also found that FICO adds some useful information when predicting prepayments beyond what the spread at origination (SATO) offers.
Lehman said that low FICO borrowers are usually income constrained and are expected to be comparatively young, implying a higher mobility and greater sensitivity to home price appreciation. This is why in a strong housing environment, these borrowers usually take advantage of the accumulated equity in their homes comparatively sooner either in the form of cashout or a trade-up. Analysts also noted that a lackluster economy would mean more financial pressure on low FICO borrowers compared to their higher FICO counterparts, thus leading to a higher default rate. Another factor to consider is that since low FICO borrowers are comparatively younger, and because it takes awhile to build a good credit history, they would have a higher mobility and turnover rate.