medium · Asset-Backed Securities asset-nuances

What does this imply for the investor's analysis of the reported CPR (Constant Prepayment Rate)?

1. The investor should focus on the Z-spread, since among standard fixed-income yield metrics it is uniquely the one that captures the 'title issue' risk associated with mobile homes.
2. The CPR will likely ramp up gradually in line with the standard PSA benchmark curve typically used for conventional residential mortgages, reaching a steady-state level of 6% CPR by month 30.
3. The reported CPR may be artificially high due to repossessions, meaning the investor must distinguish between voluntary prepays and involuntary liquidations that result in high severity losses.
4. The high CPR is a positive sign for the trust, since it indicates that borrowers are rapidly refinancing into lower-interest conventional mortgages as their household credit profiles steadily improve.

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