The speeds of 30-year mortgage loans in Fannie Mae and Freddie Mac MBS rose "modestly" in January, accordingto the Bear Stearns Prepayment Commentary.
The aggregate speed of 30-year Fannie Maes stood at a constant prepayment rate of 9.6 CPR, up from 9.0 CPR in December,and 9.0 CPR for comparable Freddie Macs, up from 8.4 CPR in December.
Bear Stearns senior managing director Dale Westhoff said the increase in speeds was concentrated in 2006 and 2007vintage 5.5s and 6.0s, while speeds declined for more seasoned coupons.
"While the average six-week lagged mortgage rate of 6.14% for the current reporting cycle represented themost attractive refinancing opportunity to date for the 2006 and 2007 vintages, it is still significantly higherthan the 5.6% mortgage rate that more seasoned cohorts saw during the fourth quarter of 2005," Mr. Westhoffsaid.
The Bear Stearns analyst said tighter underwriting guidelines and the sinking housing market "have muted therefinance response" to the decline in rates. He noted that mortgage rates had fallen 30 basis points betweenthe November and January reporting periods.
"This drop in rates has produced a modest 5 CPR prepayment increase on 2006 [Fannie Mae] 6.0s and only a 3CPR increase on 2006 [Fannie Mae] 6.5s," Mr. Westhoff said. "Throughout the 2004/2005 period we wouldhave expected at least a 10-12 CPR response to a similar rally in rates."
The Bear Stearns analyst said the fact that the 30-year conventional mortgage rate had dropped below 5.65% forthe first time since early 2005 would lead one to expect a sharp increase in refi activity.
"However, despite the fact that more than 50% of outstanding mortgage have mortgage rates that are 40 bpsor more above current rates, we do not expect the resulting refinancing surge to match the magnitude or intensityof prior refinancing waves from the last decade," he declared.***Standard & Poor's recently announced a revision of its guidelines for the reporting of monthly loan-levelorigination variables and data by mortgage servicers.
Beginning with residential mortgage-backed security transactions closing after April 1, 2008, S&P said it willexpect "responsible parties" to provide updated loan-level performance information on all residentialmortgage loans underlying U.S. RMBS, along with the origination loan ID and the name of the originator.
As an interim measure, S&P said it is encouraging servicers and responsible parties, beginning on March 1,to provide access to all available monthly loan-level performance data on existing transactions.
