MBS Research - Securitization.Net

Nomura Fixed Income Research
MBS Research
Monthly Update on FHA/VA Reperforming Mortgages: Historical
Prepayment Speeds, Default Losses, and Total Returns
April factors showed mild increases in both 30-year Agency MBS and reperforming
FHA/VA collateral. FHA/VA reperforming collateral prepaid at CPRs ranging from
the low-teens to the mid-30s, with a majority in the low-to-mid 20s. GSMPS 1998-5,
a very seasoned deal with a current principal balance of only $43.1 million and an
original WAC of 8.97%, prepaid at 35% CPR, the highest one-month speed we have
seen to date in a fixed-rate tranche. While this may draw some attention from
investors, we believe that 3- and 12-month historical speeds are a better indicator of
prepayment trends in this market. One-month speeds tend to be somewhat
idiosyncratic, especially for small deals with current balances under $100 million.
Overall, these securities continued to provide strong call protection compared to
seasoned and TBA premium agency collateral, as shown in the graph and appendix
attached to this report.
In the table on the following page, we present total return calculations for Nomura
and Nomura/Countrywide underwritten FHA/VA passthroughs. The figures are
tabulated from actual bid-side trader valuations as of the April 30 close, and
benchmarked to FNMA TBA collateral, which is the market convention. All total
return numbers given are actual holding period returns, i.e., they are not annualized.
As expected in the current market environment, with low rates and a high level of
refinancing, FHA/VA reperforming passthroughs outperformed TBA FNMA collateral
by a substantial margin. All Nomura and Nomura/Countrywide underwritten
FHA/VA passthroughs issued three or more months ago have outperformed
comparable TBA FNMAs by over 200 basis points; those outstanding nine or more
months have outperformed by at least 350 basis points. Due to the combination of
muted prepayment speeds and market reaction to these speeds (reflected in higher
price mark-ups from TBA collateral), we expect that FHA/VA reperforming
passthroughs will continue to outperform FNMA TBA collateral as long as the
current low-rate environment endures.
The FHA and VA absorb most of the credit losses on defaulted FHA/VA mortgages.
As a result, default losses on these deals have been relatively small. In the
appendix on page three, we provide the historical losses on GSMPS and
Nomura/Countrywide deals. Losses on FNGT deals, which do not have mezzanine
or subordinate tranches, are not publicly available. Credit losses do not exceed 43
basis points on any deal, and only two deals have losses exceeding 26 basis points.
Credit losses to date on Nomura and Nomura/Countrywide deals, one of which is
now 23 months seasoned, do not exceed 11 basis points.
May 7, 2003
In the midst of the largest
refinancing wave in the history
of the MBS market, with today’s
MBAA Refi Index back above
6000, call protection remains a
critical element in the
performance of mortgage
portfolios.
Contacts:
Arthur Q. Frank, CFA
Director, MBS Research
(212) 667-1477
afrank@us.nomura.com
James M. Manzi
Analyst, MBS Research
(212) 667-2231
jmanzi@us.nomura.com
Nomura Securities International, Inc.
Two World Financial Center
Building B
New York, NY 10281
Please read the important disclosures and analyst certifications appearing on the last page.

Nomura Fixed Income Research
Table: Total Return Comparison Between FHA / VA Reperforming
Passthroughs and FNMA TBA Passthroughs
Total Return Comparison
DEAL Tranche Coupon
FHA/VA
Total
Returns **
Holding
Period
(Months)
FN TBA *
Total
Returns **
Total Return
Outperformance
(bps)
FNW 2003-W1 2A 7.5 2.488% 3 0.274% 221
FSPC T-51 2A 7.5 4.633% 6 0.914% 372
FSPC T-51 1A 6.5 4.201% 6 2.104% 210
FNW 2002-W6 2A 7.5 6.825% 9 1.762% 506
FSPC T-41 3A 7.5 8.489% 11 3.215% 527
FSPC T-41 2A 7 8.354% 11 3.890% 446
FNW 2002-W1 2A 7.5 10.556% 13 5.007% 555
FNW 2001-W3 A 7 11.222% 18 5.949% 527
NAA 2001-R1A A 7 13.632% 21 10.069% 356
* For FN TBAs we used 2000 production on both 7s and 7.5s and 2001 production for 6.5s
** Note that these are actual holding period returns, NOT annualized numbers
Sources: Bloomberg, Nomura
Graph: Prepayment Comparison of Deals Backed by FHA/VA Reperforming
Mortgages and Comparable GNMA Pass-Throughs
3 month CPRs
65%
55%
45%
35%
25%
15%
GNMA (6.5s) GNMA (7s) GNMA (7.5s)
GSMPS Avg
10yr Swap
9.0%
8.5%
8.0%
7.5%
7.0%
6.5%
6.0%
5.5%
5.0%
4.5%
10yr Swap Yield
5%
Sep-98 Feb-99 Jul-99 Dec-99May-00 Oct-00 Mar-01 Aug-01 Jan-02 Jun-02 Nov-02
4.0%
Sources: Bloomberg, Nomura
(2)

Nomura Fixed Income Research
Credit Losses on Nomura/Countrywide & GSMPS Deals
GSMPS Credit Losses
0.4500%
0.4000%
0.3500%
0.3000%
Loss %
0.2500%
0.2000%
0.1500%
0.1000%
0.0500%
0.0000%
May-98
Jul-98
Sep-98
Nov-98
Jan-99
Mar-99
May-99
Jul-99
Sep-99
Nov-99
Jan-00
Mar-00
May-00
Jul-00
Sep-00
Nov-00
Jan-01
Mar-01
May-01
Jul-01
Sep-01
Nov-01
Jan-02
Mar-02
May-02
Jul-02
Sep-02
Nov-02
Jan-03
Mar-03
1998-1 1998-2 1998-3 1998-4 1998-5 1999-1 1999-2 1999-3 2000-1 2001-2
Nomura & Nomura / Countrywide Credit Losses
0.4500%
0.4000%
0.3500%
0.3000%
0.2500%
0.2000%
0.1500%
0.1000%
0.0500%
0.0000%
Jun-01
Jul-01
Aug-01
Sep-01
Oct-01
Nov-01
Dec-01
Loss %
Jan-02
Feb-02
Mar-02
Apr-02
May-02
Jun-02
Jul-02
Aug-02
Sep-02
Oct-02
Nov-02
Dec-02
Jan-03
Feb-03
Mar-03
Apr-03
NAA 2001-R1A FNW 2001-W3 FNW 2002-W1 (1) FNW 2002-W1 (2) FSPC T-41 (1)
FSPC T-41 (2) FSPC T-41 (3) FNW 2002-W6 (1) FNW 2002-W6 (2) FSPC T-48
Sources: Bloomberg, Nomura
(3)

Nomura Fixed Income Research
Appendix: Recent Prepayment History
Nomura & Nomura / Countrywide Deals
Updated Pricing Current CPRs
Cum Loss
As of Deal Date WAC WAM Orig Bal 1mo 3mo 12mo Life (% of orig)
Apr-03 NAA 2001-R1 5/23/2001 8.537% 269 $98,915,946 20.9% 18.9% 19.6% 17.0% 0.108%
Apr-03 FNW 2001-W3 10/24/2001 8.305% 286 $443,602,693 21.4% 19.5% 16.9% 14.6% 0.087%
Apr-03 FNW 2002-W1 (I) 2/26/2002 7.211% 307 $153,073,573 27.3% 24.6% 18.9% 18.0% 0.050%
Apr-03 FNW 2002-W1 (II) 2/26/2002 8.546% 298 $409,628,137 22.6% 20.8% 17.4% 16.8% 0.050%
Apr-03 FSPC T-41 (I) 5/17/2002 6.973% 308 $176,560,858 22.0% 18.5% 14.6% 0.024%
Apr-03 FSPC T-41 (II) 5/17/2002 7.484% 304 $176,707,014 29.7% 22.5% 17.4% 0.024%
Apr-03 FSPC T-41 (III) 5/17/2002 8.336% 307 $408,069,358 25.1% 21.4% 17.7% 0.024%
Apr-03 FNW 2002-W6 (I) 7/11/2002 7.348% 309 $482,436,697 23.5% 19.5% 17.6% 0.001%
Apr-03 FNW 2002-W6 (II) 7/11/2002 8.281% 293 $647,760,592 25.3% 21.0% 17.4% 0.001%
Apr-03 FSPC T-48 (1A) 9/5/2002 7.684% 310 $1,344,647,377 21.4% 18.1% 15.4% 0.000%
Apr-03 FSPC T-51 (1A) 10/15/2002 7.498% 313 $310,789,266 15.2% 13.5% 12.5% 0.000%
Apr-03 FSPC T-51 (2A) 10/15/2002 8.807% 297 $145,024,329 16.5% 15.5% 17.2% 0.000%
Apr-03 FSPC T-54 (I) 2/14/2003 6.593% 315 $150,155,939 15.0% 14.1% 0.000%
Apr-03 FSPC T-54 (II) 2/14/2003 7.281% 316 $525,537,433 11.6% 12.4% 0.000%
Apr-03 FSPC T-54 (III) 2/14/2003 8.321% 304 $524,340,988 20.6% 17.5% 0.000%
Apr-03 FNW 2003-W1 (I) 12/10/2002 7.222% 313 $1,155,580,636 15.1% 12.2% 0.000%
Apr-03 FNW 2003-W1 (II) 12/10/2002 8.335% 300 $344,662,348 16.0% 14.9% 0.000%
GNMA March Prepayments
Production Current Balance
Current CPRs
Year / Coupon ($mm) WAC WAM Age 1mo 3mo 12mo
1997 / 7 2822.3 7.50 282 68 56.5 55.2 45.2
1993 / 7 7103.5 7.50 229 116 50.6 48.3 39.0
1993 / 7.5 3442.5 8.00 227 118 50.8 48.7 41.5
1992 / 8 1867.7 8.50 215 130 43.7 42.3 37.4
GSMPS Deals
Updated Pricing Orig Orig Current CPRs
Cum Loss
As of Deal Date WAC WAM Orig Bal 1mo 3mo 12mo Life (% of orig)
Apr-03 GSMPS 1998-1 5/22/1998 9.707% 255 $93,189,873 23.3% 24.7% 23.7% 17.3% 0.212%
Apr-03 GSMPS 1998-2 6/23/1998 9.358% 248 $92,281,528 22.1% 21.2% 23.7% 16.4% 0.194%
Apr-03 GSMPS 1998-3 8/18/1998 9.217% 249 $93,784,603 18.8% 19.7% 20.0% 15.6% 0.228%
Apr-03 GMSPS 1998-4 9/25/1998 9.175% 259 $97,136,002 21.3% 19.5% 20.3% 16.0% 0.423%
Apr-03 GSMPS 1998-5 11/25/1998 8.970% 254 $105,213,634 35.0% 24.5% 23.4% 16.3% 0.175%
Apr-03 GSMPS 1999-1 4/12/1999 8.773% 266 $259,514,267 21.7% 24.9% 22.3% 16.6% 0.151%
Apr-03 GSMPS 1999-2 6/25/1999 9.027% 257 $123,714,221 22.2% 20.7% 22.3% 16.1% 0.383%
Apr-03 GSMPS 1999-3 11/26/1999 8.964% 254 $118,786,745 27.7% 21.5% 23.1% 16.9% 0.253%
Apr-03 GSMPS 2000-1 3/24/2000 9.180% 305 $88,782,171 21.1% 18.4% 21.8% 15.6% 0.226%
Apr-03 GSMPS 2001-2 7/20/2001 8.061% 288 $154,921,545 22.6% 25.0% 23.0% 19.8% 0.036%
Other Deals (Fixed Tranches)
Updated Pricing Orig Orig
Current CPRs
As of Deal Date WAC WAM Orig Bal 1mo 3mo 12mo Life
Apr-03 FNGT 2000-T6 11/15/2000 8.751% 275 $284,565,010 23.9% 24.3% 23.3% 19.0%
Apr-03 FNGT 2001-T1 1/11/2001 8.798% 280 $260,770,309 24.1% 24.5% 23.4% 19.7%
Apr-03 FNGT 2001-T3 2/12/2001 8.375% 292 $238,521,954 31.6% 26.7% 24.5% 20.3%
Apr-03 FNGT 2001-T4 4/13/2001 8.331% 289 $500,179,080 28.4% 26.1% 23.2% 19.8%
Apr-03 FNGT 2001-T8 7/16/2001 8.226% 298 $617,893,700 27.6% 26.2% 25.2% 22.1%
Apr-03 FNGT 2001-T10 10/3/2001 8.115% 305 $1,459,035,651 25.9% 23.7% 22.5% 20.8%
Apr-03 FNGT 2001-T12 10/31/2001 8.039% 314 $712,137,483 23.8% 23.0% 23.4% 21.7%
Apr-03 FNGT 2002-T1 (I) 1/2/2002 7.024% 304 $179,099,938 24.2% 20.2% 16.5% 15.0%
Apr-03 FNGT 2002-T1 (II) 1/2/2002 7.837% 302 $295,436,786 28.0% 24.3% 21.9% 20.6%
Apr-03 FNGT 2002-T1 (III) 1/2/2002 8.794% 304 $276,278,414 24.2% 26.0% 24.8% 23.1%
Apr-03 FNGT 2002-T4 (I) 1/31/2002 7.334% 308 $392,468,624 25.6% 23.9% 22.7% 21.3%
Apr-03 FNGT 2002-T4 (II) 1/31/2002 7.995% 314 $340,097,475 25.5% 24.0% 24.7% 22.9%
Apr-03 FNGT 2002-T4 (III) 1/31/2002 8.827% 304 $504,905,946 26.8% 25.9% 26.1% 24.5%
Apr-03 FNGT 2002-T6 3/14/2002 8.467% 314 $477,498,213 29.9% 27.4% 25.1% 25.1%
Apr-03 FNR 2001-79 11/19/2001 7.709% 301 $453,517,782 22.8% 22.7% 21.2% 18.9%
Apr-03 FNR 2002-33 (VIII) 4/10/2002 8.069% 302 $423,971,164 24.9% 20.3% 15.5%
Apr-03 FSPC T-42 (I) 5/14/2002 7.683% 308 $579,647,086 28.3% 23.9% 21.1%
Apr-03 FSPC T-42 (II) 5/14/2002 8.742% 305 $518,811,837 30.6% 27.1% 22.5%
ARM Tranches
Updated Pricing Orig Orig
Current CPRs
As of Deal Date WAC WAM Orig Bal 1mo 3mo 12mo Life
Apr-03 FNW 2002-W1 2/26/2002 7.338% 285 $93,164,423 12.9% 14.8% 16.4% 15.9%
Apr-03 FNW 2002-W6 7/11/2002 6.712% 297 $102,066,543 25.3% 19.6% 17.7%
Apr-03 FSPC T-48 9/5/2002 6.768% 290 $101,677,489 12.7% 14.0% 15.0%
Apr-03 FSPC T-54 2/14/2003 6.160% 289 $92,279,596 6.4% 12.1%
Apr-03 FNGT 2000-T6 11/15/2000 8.350% 287 $40,238,780 9.6% 11.1% 22.5% 19.4%
Apr-03 FNGT 2001-T1 1/11/2001 8.405% 294 $97,905,518 21.4% 22.8% 22.7% 22.0%
Apr-03 FNGT 2001-T8 7/16/2001 8.157% 294 $68,847,140 26.0% 24.3% 23.3% 23.1%
Apr-03 FNGT 2001-T12 10/31/2001 7.957% 294 $108,685,397 19.8% 21.1% 21.2% 19.9%
Apr-03 FNGT 2002-T6 3/14/2002 7.390% 294 $60,639,607 19.4% 17.3% 18.8% 18.2%
Apr-03 FNR 2002-33 (IX) 4/10/2002 6.331% 314 $137,315,165 15.9% 14.6% 16.6%
Apr-03 FNR 2002-33 (X) 4/10/2002 6.953% 289 $29,735,188 27.8% 30.7% 21.6%
Sources: Bloomberg, Intex, GNMA factor tapes, Nomura
(4)

NEW YORK TOKYO LONDON
Nomura Securities International Nomura Securities Company Nomura International PLC
2 World Financial Center, Building B 2-2-2, Otemachi, Chiyoda-Ku Nomura House
New York, NY 10281 Tokyo, Japan 100-8130 1 St Martin's-le-grand
(212) 667-9300 81 3 3211 1811 London EC1A 4NP
44 207 521 2000
Nomura Fixed Income Research
New York
David P. Jacob (212) 667 2255 Head of Fixed Income Research and Structuring
David Resler (212) 667 2415 Head of U.S. Economic Research
Mark Adelson (212) 667 2337 Securitization/ABS Research
Arthur Q. Frank (212) 667 1477 MBS Research
Louis (Trey) Ott (212) 667 9521 Corporate Bond Research
Joshua Phillips (212) 667 2042 CMBS Research
Carol Stone (212) 667 2418 Deputy Chief Economist
Lisle Leonard (212) 667 9076 Analyst
James Manzi (212) 667 2231 Analyst
Javier Villanueva (212) 667 9170 Analyst
Elizabeth Hoyt (212) 667 2339 Analyst
Kumiko Kimura (212) 667 9088 Translator
Michiko Whetten (212) 667 2338 Translator
Tokyo
Nobuyuki Tsutsumi 81 3 3211 1811 ABS Research
London
John Higgins 44 207 521 2534 Head of Macro Economic Research- London
Duncan Sankey 44 207 521 2984 Head of London Credit Research
© Copyright 2003 Nomura Securities International, Inc.
I, Arthur Q. Frank, a research analyst employed by Nomura Securities International, Inc., hereby certify that all of the views expressed in this
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