Live Well Financial, Ocwen, and American Advisors Group topped the list of “best” Home Equity Conversion Mortgage-backed securities (HMBS) for the fourth quarter of 2017.
The new list, from the St. Johns, Fla.-based analysis firm Baseline, tracks the conditional prepayment rate (CPR) — or the speed at which the loan’s principal balance is paid off — for each HMBS. The lower the rate, which is expressed in terms of an annual percent, the more attractive the loan is for investors.
“If you buy a bond, and you’re going to earn interest as long as the bond is outstanding, you want the bond to remain outstanding as long as possible,” Baseline founder Dan Ribler told RMD.
Baseline further breaks out the lists of top performers by funding year to provide a more accurate comparison: Since older loans generally have higher prepay speeds, it’s important to standardize the analysis by funding date.
Among those loans funded in 2017, Live Well Financial saw the strongest performance in the fourth quarter, logging a CPR of 2.65%. Ocwen followed next with 3.30, and AAG took third place with 3.39%.
Stepping one year back, for loans funded in 2016, AAG took the crown with 8.61%, followed by Reverse Mortgage Funding at 10.19% and Ocwen at 10.37%.
In all, during the fourth quarter, the industry saw prepayment rates of 3.34% for loans funded in 2017, 10.22% for 2016 loans, and 19.88% for 2015 loans.
“HMBS issuers and investors alike keep a very close eye on prepayment speeds to ensure they are putting capital to use efficiently,” Baseline noted in its analysis.
Written by Alex Spanko