March prepayments were generally not in line with expectations. Speeds on FNMA 2006 and 2007 vintages declined 19% and 16%, respectively, on average. This is compared with expectations of negative 5% and negative 10%. Prepayments on older vintage 5.5s through 7s increased, particularly for 6.5% and 7% coupons. Speeds for this group were expected to slow around 3%.

The factors that contributed to the slowing in prepays were higher mortgage rates in February (compared with January) that led to slower refinancing activity. In addition, February speeds were also impacted by the rush to close before higher g-fees went into effect on March 1, particularly in the less seasoned 2007 and 2006 vintages.

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