Agency MBS Speeds Rise Modestly

Prepayment rates for 30-year Fannie Mae and Freddie Mac mortgage-backed securities rose modestly in February, according to Bear Stearns & Co.For Fannie 30-year MBS issues, the aggregate prepayment rate increased by 4.7% in February, compared with an increase of 10% for Freddie Mac issues, Bear Stearns analyst Dale Westhoff reported. "The biggest surprise in Friday's numbers was that [Fannie Mae] prepayments on premium coupons (6.0s and higher) were virtually unchanged from January levels," Mr. Westhoff said. He added that the 7% rise in the speeds of Freddie Mac premium coupons was more in line with expectations. The analyst said the recent rise in the 30-year mortgage rate and the flattening of the yield curve augurs a retreat in the Mortgage Bankers Association's Refinance Index to the 1700 level. "Barring another rally, we expect the mortgage prepayment curve to flatten as well (beginning with the April report), with discount speeds supported by strong spring/summer seasonal effects while premium speeds compress under a flatter curve and diminished refinancing demand." Bear Stearns can be found online at http://www.bearstearns.com.