With MBS credit currently an issue in the mortgage market, analysts have been focusing more on LTV as a credit indicator. Aside from credit fundamentals, analysts have also studied how LTVs impact MBS prepayments. Although high LTV loans previously prepaid slower compared to lower LTV mortgages, the opposite is happening now (see ASR 10/25/04).
In a recent report, Countrywide Securities stated that the recent uptick in LTVs in the 30-year sector is probably not reflective of a deterioration of credit fundamentals, but it is more an indication of a rise in the percentage of purchase loans over the last quarter. Analysts noted that LTVs have begun to edge higher after steadily declining since late 2000. The report also showed, however, that purchase loan LTVs are consistently higher versus refinancing mortgage loans. Countrywide said this is reflective of the fact that refinancing loan LTVs usually decline as the borrower's property appreciates. The increase in the percentage of purchase loan issuance for most of 2004 is, analysts argue, mainly responsible for the upward creep in new-issue LTVs.