The latest monthly prepayment numbers bear out expectations that refinancing sparked by recent record-low rates has some legs, but they also show that the HARP response is leveling off and the reaction to FHA MIP reductions has been muted, according to Credit Suisse.
Prepayment speeds on 30-year cusp coupons, called so because they are considered to be on the cusp of being refinance-able, accelerated a bit during the month. Both third-party origination and retail channels contributed to the increase, according to a CS research report.
"This confirms expectations that speeds on those coupons, 3.5s and 4s, may be sustained," said Mahesh Swaminathan, managing director and head of Credit Suisse's residential mortgage research group.
July speeds also show the Ginnie Mae response to the Federal Housing Administration’s mortgage insurance premium reductions was “more muted than widely expected,” Swaminathan said.
In addition, the latest prepayment numbers suggest refinancing sparked by the Home Affordable Refinance Program is stabilizing. This means the next round of HARP prepayments “could be lower as a opposed to higher,” Swaminathan said.
