Prepayment Speeds Fall, But Is Dip Temporary?
Overall prepayment rates for mortgage-backed securities declined 6% in April from a constant prepayment rate of 16.8 CPR to 15.8 CPR, according to Credit Suisse.
Writing in the "April 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 fell by 15% to 20%, while those of vintage 2007 6.5s (backed by "weak borrowers") remained unchanged.
Meanwhile, the speeds of 15-year mortgage pools remained higher than those of their 30-year counterparts.
"The speed differences persisted this month as speed declines on 2007 and 2006 vintage 15-year pools were smaller than their 30-year counterparts, due to pristine credit on the 15-year borrowers," the analysts said.
The Credit Suisse analysts reported that the estimated net issuance of fixed-rate MBS jumped from $38 billion in March to $48.5 billion in April, an increase of 28%.
The estimated net issuance of 30-year Fannie Mae and Freddie Mac MBS rose from $28 billion to $34 billion, while estimated issuance of 30-year Ginnie Mae securities climbed from $8.3 billion to $11.7 billion, they said.
The analysts projected that prepayments would decline 10%-15% for premium coupons and by about 5% for discounts in May due to the 20-basis-point rise in rates during April.
"As noted before, with the onset of credit-based delivery fees from March, and a slated hike of such fees in June, refi-response will likely be increasingly dampened for weaker credit borrowers backing the higher coupons," they predicted.
In other prepayment-related news, Barclays Capital recently commented on the speeds of 10- and 20-year interest-only mortgage loans vs. those of 30-year loans.
The 10/20 IOs currently prepay slower than the 30-year loans in part because they have higher loan-to-value ratios, lower FICO scores, and higher concentrations in California and Florida, according to the May 27 issue of Barclays Capital's Mortgage Market Outlook.
"However, an important question is: All else equal, do 10/20s still prepay slower than 30 years?" the Barclays analysts asked. "This is relevant because not all 10/20 IO pools are the same. Therefore, an investor facing a 10/20 pool with large loan size, low LTV, high FICO, and low California/Florida concentration would want to know whether this pool provides call protection against TBA."
The analysts answer the question in the affirmative, reporting that with "nearly everything controlled," 10/20 IOs prepay 5-12 CPR slower. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/