Agency MBS Speeds Peak

Prepayment rates for agency mortgage-backed securities were mixed in the November reporting period, suggesting that speeds have peaked and should begin to slow broadly in December, according to the Bear Stearns Prepayment Commentary.Speeds of 30-year 6.0% coupons and 2002 vintage 6.5% coupons rose by 5%-10%, while those of other coupons either held steady or slowed modestly, said analysts Dale Westhoff and Bruce Kramer. "Given that a top in the numbers is established with today's report, we anticipate a positive reaction by MBS investors as they gain a much clearer perspective as to the timing and magnitude of future cashflows," the analysts said. The fastest-paying cohort continued to be the 2000 vintage Freddie Mac 7.0% coupon, which peaked in October at a constant prepayment rate of 77 CPR and slipped to 73 CPR in November, they reported. The Bear Stearns analysts said the lag time between peak application flow and peak prepayments apparently increased from four weeks to five weeks in this cycle, a little less than expected. But they predicted that prepayments may decline more gradually than in the past "as lenders increase their commitment periods to handle the massive application volume." Bear Stearns can be found online at http://www.bearstearns.com.