The original loan size can potentially drive prepayment speed differences in a Mortgage-Backed Security (MBS) based on loan balances and original Debt-to-Income (DTI) ratios. Loans with higher balances and lower DTI ratios may have faster prepayment speeds.
The original loan size can potentially drive prepayment speed differences in a Mortgage-Backed Security (MBS) for two reasons.
Loan Balances: The range of loan balances from $46,000 to $1,100,000 may indicate a difference in the borrower's ability to make payments. Borrowers with higher loan balances might have higher incomes or stronger credit profiles, making it easier for them to repay the loan. This could result in faster prepayment speeds for larger loans.
Original Debt-to-Income (DTI) Ratios: The range of original DTI ratios from 5% to 46% also influences prepayment speeds. Borrowers with lower DTI ratios (indicating higher income relative to their debt) are more likely to have the financial capacity to prepay their loans. Therefore, loans with lower DTI ratios might experience faster prepayment speeds