Kevin Jackson, analyst at RBC Dain Rauscher, in today's comments suggests for investors to look into GL/GO reperforming pools, which are sectors that currently offer comparable prepayment protection. He explained that GL pools are agency wrapped FHA/VA loans and GO pools are repackaged delinquent FHA/VA loans.
For example, Jackson said that considering that a loan was previously delinquent and has made it back to current status makes it more difficult for that loan to refinance going forward. Aside from this, these pools usually have lower average loan balances. This also makes them a good generic alternative.
He stated that 30-year FNMA GL pools have prepaid 23% slower, on average, compared to 30-year FNMA TBA pools over a 60-month seasoning period historically. Meanwhile, 30-year FNMA GL pools have prepaid 24% slower, on average, compared to 30-year FNMA TBAs when they are 25 to 75 bps in the money.
Jackson also said that 30-year GL pools have prepaid considerably slower than 30-year FNMA generics when seasoned and refinancable. Meanwhile, 30-year GL pools have prepaid 57% slower, on average, compared to 30-year FNMA generics after a 30-month seasoning period and when 100 bps in the money.
He added that in the previous 12 months, GL pools have prepaid 76% slower than 30-year FNMA generic pools. Jackson concluded that if investors are going to pay for seasoning, they should do it in the 30-year GL sector.