medium · Asset-Backed Securities
A subprime HEL loan pool consists primarily of 2/28 hybrid ARMs.
Why do these loans typically show a massive spike in prepayments around month 24?
- The government 'graduation' program kicks in after two years of successful payments
- The 'Shifting Interest' lockout period expires, allowing subordinates to pay down
- Borrowers refinance to avoid the 'payment shock' of the initial interest rate reset
- Property values are legally required to be reappraised every 24 months
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