U.K. prepayment speeds among U.K. RMBS transactions have fallen dramatically since the onset of the crisis, as lenders tighten underwriting criteria, rate cuts take hold and the impact of lower house values are felt.
These speeds have a significant bearing on the ability of an RMBS trust to repay bonds on their scheduled maturities, said Deutsche Bank analysts.
According to Deutsche Bank research, certain trusts such as Mound and Holmes are likely to generate sufficient principal receipts to ensure timely bond repayment. However others such as Aire Valley, which has already witnessed bond extension. Lanark, Mound and Pendeford, based on their current CPR, could experience principal deferral if support from the sponsors either through further issuance, injection of cash or mortgage assets is not forthcoming.
“We would highlight that even those trusts that generate sufficient principal under current CPR rates could under lower CPRs eventually succumb to the same fate,” analysts said. “Sufficiently high CPR is not a guarantee that adequate principal will be generated by the trust to ensure timely bond payment without recourse to seller support.”