With prepayments in 2001 and 2002 exhibiting different characteristics from previous refinancing waves, Merrill Lynch has just released a model that incorporates knowledge obtained from more recent prepayment experience.
Merrill analyst Akiva Dickstein noted that aside from the higher level of prepayments recently seen, there has also been a significant differentiation across collateral types and vintages. For instance, 2000 vintage collateral has prepaid much faster than 1999 vintage. Added to this, Dickstein said that there has been a segregation of numerous pools that was based on desirable characteristics such as Alt-A and low loan balance. This has led to adverse selection in the TBA market.