Conventional Prepays Down Overall in Month, But HARP Still Boosting Some Pools

Thirty-year conventional prepayment speeds overall dropped 8% in the latest month, although the Home Affordable Refinance Program continues to accelerate speeds in certain pools, according to Credit Suisse research.

For example, HARP speeds on Bank of America-issued Fannie Mae pools in November, adjusted for day count, continued to rise, according to a CS report.

When asked about the outlook for prepayments next year, Mahesh Swaminathan, a managing director at Credit Suisse, told this publication that speeds on older, HARP-eligible loans “should continue to remain fast, or maybe even a touch faster.

“That dynamic probably continues for at least the first half of next year, perhaps a little longer,” he said.

But over time rising guarantee fees are likely to constrain prepayments to some extent on post-HARP mortgages.

For new production, factors such as new agency representation and warranty contracts that contain a bright-line test aimed at providing more certainty to originators about their potential liabilities should “open up the credit box a little bit.”

In addition to the rep and warranty reform, factors that could improve the ability of these borrowers to refinance include some relative strengthening in home prices that should help bolster loan-to-value ratios, he said.

Freddie Mac chief economist Frank Nothaft said in an interview that home price appreciation increases in national home price indices have not been “huge” but are “the best news we’ve had in quite some time.”

Nothaft in his recent economic outlook predicts refinancing as well as originations overall in 2013 will be down 15% from 2012, with purchases increasing but refinancing still the dominant force in the market.