Agency MBS Speeds Show 'Modest' Rise, Fall

Prepayment rates for Fannie Mae and Freddie Mac mortgage-backed securities recorded "modest gains" in coupons below 6.5% and "modest declines" in higher coupons, according to Bear Stearns.Analyst Dale Westhoff said speeds of new Fannie Mae 6.0% coupons increased by a constant prepayment rate of nearly 4 CPR, but that speed-ups in other coupons fell short of expectations. Mr. Westhoff attributed this to "the significant flattening of the yield curve from April to August" and to limited news coverage of the recent decline in mortgage rates. "The biggest surprise in today's numbers was the decline in prepayments in higher coupons in the face of a significant rally in mortgage rates," Mr. Westhoff said. "Over the last two reporting periods we have seen almost a 35 bp rally in 30-year mortgage rates with very little prepayment response. Across the entire coupon spectrum, speeds today are lower than they were in June 2004, while mortgage rates are at least 20 bps lower than for the June reporting period." Bear Stearns can be found online at http://www.bearstearns.com.