'Sigh of Relief' at Fannie & Ginnie Speeds?

Prepayments for Fannie Mae and Ginnie Mae mortgage-backed securities "continued to show healthy declines" in the May reporting period, which should cause the mortgage market to "breathe a sigh of relief," according to the Bear Stearns Prepayment Commentary.However, analysts Dale Westhoff and Bruce Kramer cautioned that despite the "reassuring numbers," they believe "the level of prepayment risk remains extremely high." Speeds for Fannie Mae 30-year coupons of 7.0% and higher generally fell 5%-15% from April levels, the analysts said. "These numbers are consistent with our theory that even in a low and stable interest rate environment, prepayments will experience a natural decay as the eligible pool of refinancers diminishes over time," they said. "Indeed, we believe that only a clear break-out from this trading range will reverse the slowing trend and produce a significant refinancing surge." There were exceptions to the slowing trend in the discount sector, where most Fannie Mae and Ginnie Mae speeds increased.