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May 12, 2008
By Terry Peters
MBS Speeds Fall After February Surge
Overall prepayment rates for mortgage-backed securities fell 6.9% in March after surging 52% in February, suggesting that speeds "were front-loaded in February, most likely as originators tried to avoid the new delivery fees applicable from March," according to Credit Suisse.Writing in the company's "March 2008 Fixed Rate Prepayment Commentary," Credit Suisse researchers Mahesh Swaminathan and Chandrajit Bhattacharya reported that the speeds of 30-year vintage 2006 and 2007 5.5s and 6.0s backed by "highly creditworthy borrowers" fell by constant prepayment rates of 5 CPR to 6 CPR.
This represented a reversal of the spike in February, they noted.
"In contrast, the prepayment profile on 6.5s and 7s backed by weak borrowers has remained stable over the past three months," they said.
"We believe the prepayment spike in February and the subsequent drop-off in March on 2007 and 2006 vintage 5.5s through 6s was due to a front loading of closings in February."
The Credit Suisse analysts reported that the estimated net issuance of fixed-rate MBS fell to $38.1 billion in February, a decline of 24% from $50.0 billion in January, while the net issuance of 30-year Fannie Mae and Freddie Mac MBS fell from $47.6 billion to $19.5 billion.
The prepayment report points to the fact that extension risk is currently the "prevalent risk," especially in the 30-year 5.0% and 5.5% coupons, they said.
"Incrementally larger rallies are necessary to elicit the same refinancing response," the analysts said. "As rates were reaching new lows in January, a 5.87% rate triggered a 3575 refi-index compared to only a 2636 print in late March for the same rate level."
The Credit Suisse analysts projected that prepayments would hold steady for premium coupons and rise by about 5% for discounts in April due to an additional two business days and a "slight increase in seasonality."
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Fitch Solutions recently announced the acquisition of an equity stake in Portsmouth Financial Systems, a Portsmouth,
N.H.-based provider of advanced structured finance analytics.
The company said the platform has been beta-tested with investment banks, asset managers, and hedge funds, and
production versions will be launched within a few months..
"Portsmouth has developed a cutting-edge software platform that supports the modeling and analysis of structured
finance transactions, with products ranging from collateral-level analytics to cash flow modeling tools,"
Fitch Solutions said.
Fitch Group, the parent company of Fitch Ratings, launched Fitch Solutions in January "to provide further
separation of Fitch's analytical activities from its commercial activities" and to accelerate the development
of fixed-income data and analytics solutions.