Bond Rally Adds Fuel to a Mini Refi-Boom
The speeds of 30-year fixed-rate mortgages in agency mortgage-backed securities jumped 14% in October, largely as a result of a 17-basis-point rally in mortgage rates and a one-day increase in the business calendar, according to Bear Stearns & Co.
Aggregate speeds on 30-year Fannie Mae collateral stood at a constant prepayment rate of 11.4 CPR for the month, up 1.2 CPR from their September levels, while 30-year Freddie Mac speeds registered at 10.6 CPR, up 1.5 CPR, senior managing directors V.S. Srinivasan and Dale Westhoff reported.
Prepayment rates on 2006 Fannie Mae originations rose from 8.1 CPR in September to 10.5 CPR in October, while more-seasoned vintages recorded a smaller increase. Most of the increase in the 2006 vintage was in the 6.0% and 6.5% coupons, which posted increases of 2.5 and 3.0 CPR, respectively, according to Bear Stearns. The speeds on 30-year Ginnie Mae collateral rose by 5%.
Meanwhile, prepayments on agency hybrid adjustable-rate mortgages climbed by about 11%, stemming mostly from increases in the 2005/2006 vintages.
"The prepayment spike at reset for 3/1 hybrids has increased from 55-60 CPR over the last few months to over 70 CPR in the most recent report," the analysts said.
Prepayment rates for 15-year Fannie Mae and Freddie Mac mortgages rose by 9%. Speeds on 15-year Fannie Mae collateral increased from 9.3 CPR in September to 10.1 CPR in October, while 15-year Freddie Mac speeds rose from 8.7 CPR to 9.6 CPR, Bear Stearns reported.
"We expect next month's report to show a 5% decline in speeds on discount coupons, while speeds on premium coupons should remain relatively unchanged," the analysts said. "These speeds reflect an increase in refinancing activity driven by the 10-basis-point rally in rates offset by a seasonal decline in housing turnover activity."
The Bear Stearns analysts also argued, in the November issue of Short-Term Prepayment Estimates, that the next several months will reflect a "steady slowing" of prepayments.
The main impetus behind prepayments for the foreseeable future will be seasonal factors and "continued moderation in housing turnover," they said.
"Indeed, after hitting a peak of 8.5% in 2005, aggregate housing turnover (existing sales/housing stock) has slowed to just 7.2% - its lowest level since 2002," Mr. Westhoff and Mr. Srinivasan said.
In a report on subprime residential MBS, Friedman Billings Ramsey said the one-month prepayments of ARM securities rose for all vintages. Speeds increased 11.3% for the 2006 vintage, while 2005 vintage prepayments rose by 7.2%.
In other prepayment-related news, Andrew Davidson & Co. Inc., New York, and Compass Analytics LLC, San Francisco, have announced the integration of the Andrew Davidson prepayment model for mortgage-backed securities into Compass's mortgage analytics system, CompassPoint.
The two companies' customers will now have access to the MBS prepayment model through CompassPoint for derivation of option-adjusted durations and mortgage cash flow valuation and analysis.
The integration "will significantly augment Compass's mortgage valuation and trading analytics designed to seamlessly integrate the valuation process from mapping of loan data through whole-loan or structured whole-loan cash flow valuations," said Rob Kessel, managing partner of Compass Analytics. (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com