Fannie/Freddie Speeds Rise

Prepayment rates for 30-year Fannie Mae and Freddie Mac mortgage-backed securities rose "modestly" in October in the wake of a decline in mortgage rates of 17 basis points, according to Bear Stearns analyst Dale Westhoff."The results show the classic symptoms of burnout: new issues increased more than seasoned issues while lower cuspy coupons were more responsive than higher coupons," Mr. Westhoff said. He noted that the speeds of 2004 MBS rose by over 20%, while in earlier vintages "the response was much more muted." Freddie Mac speeds are still slower than Fannie Mae's nearly across the board for 30-year MBS, while Ginnie Mae speeds continue to exceed those of conventionals across the board, Mr. Westhoff said. "Without a catalyst to unleash a significant refinancing event, the higher coupons are clearly exhibiting more burnout than they have over the last two years," Mr. Westhoff said. "Nevertheless, we feel that if mortgage rates were to enter the 5.60% to 5.40% corridor, exposing the 5.5% coupon, the observed burnout in recent months would be greatly diminished." Bear Stearns can be found online at http://www.bearstearns.com.