Loans Under $200K Prepay Slowly—But Not in Every State
In agency pools, loans with balances below $200,000 offer prepayment protection (i.e., they prepay more slowly) relative to loans with higher balances. Servicers typically segregate these loans into specified pools that trade at a premium over TBA-deliverable pools. But the prepayment protection isn’t homogenous and varies significantly by state.1
The following chart compares the S-curve for all TBA “non-spec” borrowers2 with borrowers with loan balances between $175k and $200k, the traditional range for pools with “200k-max loan size.”
Clearly, 200k-max loan size offers prepayment protection over non-spec pools. To determine the extent to which this protection varies by state, we used Edge to segregate all $175-200k loans by state and selected the three fastest and slowest states.3
On the slow side, states including Pennsylvania, New Jersey, and Maryland are significantly slower than average (red dash).
On the fast side, states including Colorado, Michigan, Utah, and Wisconsin were significantly faster than average (red dash).
In fact, $200k-max Colorado loans paid as fast or faster than the average “non-spec” category, most likely due to strong economic activity and robust home-price growth.
The upshot: when looking at pools in the $200k-max sector, it makes sense to be aware of the geographic distribution. There are several states producing speeds significantly above “generic” $200k-max speeds.
 This analysis can also be done by servicer. See RiskSpan for a detailed analysis.
 “Non-spec” excludes borrowers with high LTV, lower loan balances, low-FICO borrowers, and NY/FL borrowers.
 To select fastest and slowest states, we focused on prepayments when loans were at least 100bp in the money from a refinancing standpoint. A state must have had at least $40B UPB to be included. We excluded NY and FL loans.