While the May Freddie Mac report presented no big surprises, with Gold aggregates performing pretty much as expected - accelerating a tepid two to three CPR across the board, according to a UBS Warburg report - sources predict Fannie Mae speeds are going to be faster in this week's prepayment report.
Since the Freddie Mac report covers prepayments on a mid-monthly basis while the Fannie Mae and Ginnie Mae reports - which are expected to come out this week - cover prepayments by calendar months, the 2000 Fannie production is reacting to rates 12 basis points lower than they were a month ago, thus causing Fannie Mae speeds to be much faster than comparable Golds.
However, Ginnie Maes are not expected to react as aggressively given that the Government MBA Refi Index has been steadily declining.
According to UBS, the four-week moving average of the Conventional MBA Index is up to 2636 from 2587 in the May report. On the other hand, the four-week moving average of the Government Index is down to 1547 from 1655.
In this week's Fannie Mae report, 2000 production Fannies are expected to see strong acceleration, representing the peak speeds, and then slowing down after that. For seasoned production, the peak speeds should not occur until next month.
"One of the defining characteristics of the 2001 wave is the fact that 2000 production has been reacting with something like a one-month lag," said Glenn Boyd, an associate director from the mortgage strategy group at UBS, "whereas more seasoned production, say 1997 or older, has been reacting with a two-month lag."
The sell-off that occurred in the last several months suggests that the peak overall speeds, which are generally represented by 2000 production, are expected to be reflected in the May reports, while June and July reports are expected to reflect much slower speeds, assuming rates remain unchanged.
Aside from the time lag on 2000 production vintages compared to more seasoned ones, the other remarkable factor in the recent refi wave is the fact that prepayments have been much more aggressive than historical experience.