Speeds Surge for Recent Fannie, Freddie 5.5s

Prepayment rates for Fannie Mae and Freddie Mac mortgage-backed securities surged in June for recently originated 30-year 5.5% coupons and rose significantly for 6.0% coupons as well, according to the Bear Stearns Prepayment Commentary.Speeds for Fannie Mae '03 vintage 5.5s jumped from a constant prepayment rate of 7.2 to 20.8, while speeds for the '02 vintage soared from 18.6 CPR to 42.4 CPR, a record increase, Bear Stearns analysts Dale Westhoff and Bruce Kramer reported. The analysts said the "most notable aspect" of the June report was the divergence in response between lower coupons (6.0% and lower) and higher coupons (6.5% and higher). "The lower coupons, especially the 5.5s, saw a spectacular jump in speeds based on a first-time opportunity to refinance," they said. ".... Since today's report corresponds to a mortgage rate of approximately 5.5% and a [Mortgage Bankers Association of America] Refinancing Index of between 7500 and 8000, we expect to see additional increases develop in next month's report in response to a record low in mortgage rates of 5.25% and a 10000 peak in the Refinancing Index." Bear Stearns can be found online at http://www.bearstearns.com.