Agency mortgage-backed security prepayments continued to ramp up in the latest report but the increases generally came closer to matching expectations than the previous month.
“Overall this month's prepay report was much more in line with what the market was expecting,” said Mahesh Swaminathan, managing director, head of Agency MBS Strategy at Credit Suisse, when asked how this month's compared with the previous month's. “There were some small surprises here and there.”
A Credit Suisse report identified large speed increases in 2003-2005 vintage MBS with 5%-5.5% coupons as the key surprise, possibly due to longer-than expected closing lags for these borrowers. (These seasoned borrowers typically take longer to close because they generally require relatively more due diligence.)
A Barclays report indicated speeds on some Fannie Mae 2010 vintage 3.5%-4.5% MBS increased moderately more than expected in the latest round of prepayments, but noted that the increase was less than half of what was seen the previous month.
A Keefe, Bruyette & Woods prepayment report, which described speeds as continuing to increase as expected, suggests the expansion of the Home Affordable Refinance Program could mean prepayment speeds will remain “somewhat elevated” through “much of 2012.”
