Prepayment rates for mortgage-backed securities fell 10.5% overall in July from a constant prepayment rate of 11.9CPR to 10.7 CPR, according to Credit Suisse.
Credit Suisse researchers Mahesh Swaminathan and Mukul Chhabra, writing in the "July 2008 Fixed Rate PrepaymentCommentary," reported that the speeds of 30-year 2007 5.5% coupons slowed by 1 CPR, while 6.0% and 6.5% couponsdeclined 2 CPR.
The Credit Suisse analysts also reported that the estimated net issuance of fixed-rate MBS plunged from $60.4 billionin June to $35.8 billion, a decline of 40.8%.
The estimated net issuance of 30-year Fannie Mae and Freddie Mac MBS fell from $39.6 billion to $19.8 billion,while estimated issuance of 30-year Ginnie Mae securities declined from $20.0 billion to $18.7 billion, they said.
"The extension theme is reinforced, with diminishing prepayment activity likely to continue for the rest ofthis year," the Credit Suisse analysts said. "Speeds across the coupon stack are likely to compress ifrates grind higher."
For example, they said, the speeds of Fannie Mae 30-year 5.5% coupons "could very well" fall from 4.4CPR in July to 3 CPR over the winter.***Fitch Ratings recently announced enhancements to its ResiLogic loss model for U.S. residential mortgages. Therating agency said the new version of the model will affect assumptions about expected losses and credit enhancementlevels.
Among the new capabilities of the ResiLogic model are the introduction of macroeconomic risk multipliers for thenation and for metropolitan statistical areas, and the ability to analyze seasoned loans and take into accountloan payment history and house price changes since origination.
"The ability to look as seasoned loans through ResiLogic is significant because the dearth of new mortgageorigination has placed emphasis on the securitization of seasoned loans," said Huxley Somerville, group managingdirector and head of Fitch's U.S. RMBS group.
Mr. Somerville also pointed to national, state, and MSA-level economic forecasts as improvements to the model.The MSAs represent 25 areas that have historically shown the highest levels of nonconforming mortgage lending.
Fitch said home price forecasts are imbedded in state and MSA risk indicators and will be updated quarterly.
Other changes to the ResiLogic model cited by Fitch are the imposition of additional penalties for loans originatedwith stated-income or no-income/no-asset documentation programs, as well as for loans originated with second liens.
