Report Shows Difficulty for High SATO Volume.

Byline: Jennifer Harmon

New York-While high spread-at-origination borrowers cured quickly during 2005-07, they can no longer do so in the current environment due to dramatically tightened underwriting, sharply widened mortgage credit spreads and weakened economic conditions, according to "The Secret of Seasoning," the latest prepayment outlook report from Barclays Capital.

Much slower speeds of 2005 and earlier vintages were mostly driven by their higher spread-at-origination, a result of lower prevailing mortgage rates during 2003-05.

Strong home price appreciation and easy access to mortgage credit during 2005-07 probably prompted many 2003-05 borrowers to take out silent second liens or home-equity lines of credit.

This may have also contributed to their slower speeds, the report said.

One thing that puzzled the research team in the latest prepayment report was the extent to which 2005 and earlier vintages prepaid slower than newer production, as some may have expected the lower LTV in seasoned loans to allow them to better take advantage of the historically low mortgage rates than newer production of FNMA and FHLMC 30 year pools by origination year.

The 2003-05 vintages prepaid about half as fast as newer production. This behavior was dramatically different from the 2003 experience when seasoned pools provided nearly no call protection.