Prepay Speeds Holding Steady in Recent Monthly Data

Prepayment rates for 30-year mortgages in Fannie Mae and Freddie Mac mortgage-backed securities were little changed in April, according to the Bear Stearns Prepayment Commentary.

"Improving seasonal factors supporting housing turnover and a 12-basis-point rally in mortgage rates were offset by the cooling housing market and a two-day decline in the business calendar (counting Good Friday as a holiday)," said Bear Stearns analysts Dale Westhoff and V.S. Srinivasan.

The aggregate speed of 30-year Fannie Maes was a constant prepayment rate of 11.8 CPR, unchanged from that of the previous month, and 10.9 CPR for comparable Freddie Macs, up from 10.7 CPR in March.

Premium coupon speeds "showed very little response to the recent rally in rates," as Fannie 6.0s rose only 1.4 CPR and Fannie 6.5s declined 0.1 CPR.

Meanwhile, aggregate speeds for 30-year Ginnie Mae collateral were also "relatively unchanged" in April, the analysts said.

In the agency hybrid sector, speeds accelerated by 4%-5%, faster than in the fixed-rate sector, according to Bear Stearns. Most of the acceleration was concentrated in 3/1 and 5/1 hybrids, while the speeds of 10/1 hybrids fell modestly.

The analysts reported that prepayments are running 20% slower this year than last when controlled for seasoning and relative coupons.

"This trend will likely intensify as the new, more conservative underwriting standards are fully absorbed by the market," they declared.

In contrast to the steady April results, the speeds of 30-year fixed-rate mortgages in agency MBS climbed 16% in March, in part because of a three-day increase in the business calendar and a seasonal rise in housing turnover activity, according to Bear Stearns.

Fannie Mae 30-year collateral recorded a constant prepayment rate of 11.8 CPR overall for the month, up 1.7 CPR from their speed in February, compared with 10.7 CPR for 30-year Freddie Mac collateral, up 1.4 CPR from that of the previous month.

"The cooling housing market is starting to take its toll on discount speeds," said Mr. Westhoff and Mr. Srinivasan.

"Adjusted for seasoning, relative coupon and seasonal factors, speeds on discount coupons have slowed 15%-20% from a year ago."

Meanwhile, overall speeds for 30-year Ginnie Mae collateral increased by just 6%, although premium Ginnie Mae coupons continued to prepay faster than conventionals "mostly because of servicer buyout activity, which adds about 5-6 CPR," the Bear Stearns analysts said.

In other news, Fitch Ratings cited prepayments in a recent report forecasting that collateralized debt obligations issued in 2005 and 2006 will come under greater ratings pressure as stresses continue in the subprime market.

The stepped-up pressure is likely because those CDOs have substantially larger concentrations of subprime residential mortgage-backed securities than those in previous vintages, the rating agency said.

"Though 2006 performance will be very poor, Fitch's more immediate concerns focus on near-term ratings volatility that will arise from earlier-vintage subprime RMBS," said Fitch senior director Derek Miller. "Negative selection among borrowers due to prepayments is occurring simultaneously with the release of credit enhancement due to RMBS performance triggers passing, against the backdrop of a slowdown in the U.S. housing market." (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com