Investors in subprime residential mortgage-backed securities continue to speculate that borrowers who took out loans in 2005 will not stay on top of their mortgage payments as well as those borrowers that did so just one or two years earlier. A number of the conservatively minded buyers say they'd rather invest in later vintage deals, in large part because those mortgages have had more time to benefit from the rapid rate of home price appreciation of recent years. As 2005 vintage loans begin to age, early performance data could back up their claims.
The decision to take extra caution when investing in last year's mortgages is also driven by the specter of deteriorating underwriting standards and lower quality servicing in a more competitive subprime lending environment, according to one chief executive at an investment firm that buys subprime RMBS. "For that vintage, you need to layer your analysis using multiple data points," he said.