The recent prepayment reports for Freddie Mac highlighted the better underlying credit in loan balance paper as this credit experienced lower delinquency buyouts.
RBS analysts highlighted the delinquency-related prepays for LLB, MLB and HLB versus loans over 150,000 in a table in a recent report.
An example is 2007 6.5s which had a delinquency-related prepayment of 6.2% SMM for LLB, they said, while MLBs was just 8.1% and HLBs was 11.2%. This compares with 20.5% for loan balances greater than $150,000. The results were similar across 5.5s through 7.5s in 2006 through 2008 vintages.
Barclays Capital analysts stated the reduced delinquencies in loan balance paper is because smaller loans tend to be either lower LTV or are originated in a lower cost area that was less impacted by the surge in home price valuations that certain areas of the country experienced.
In addition to loan balance paper, Barclays analysts also pointed out that investor loans also showed less delinquency and buyout risk. The results suggest to them "that loan balance paper and investor pools should continue to provide call protection from both a refinancing and buyout perspective."