The November prepayment report will be out Tuesday evening. Street consensus predicts speeds to slow around 15% to 16% in FNMAs and slightly less in GNMAs. In midweek comments from JPMorgan Securities, analysts are anticipating speeds will slow less than market expectations - around 10%. They say that, based on anecdotal closing information, the fewer collection days in November may not have a meaningful impact. Currently, JPMorgan analysts predict paydowns at $46 billion and net fixed-rate supply to be $20 billion.
Factors impacting the report include November's 20 day count versus 20.5 in October, an increase in mortgage rates to an average of 6.07% in October compared to 5.77% in September, and a decline in the Refinance Index to an average of 1970 in October versus 2191 in September. Looking ahead, Street consensus is currently predicting speeds will slow around 10% in December and 15% to 20% in January.
In a recent report from Countrywide Securities, analysts reviewed GNMA prepayment behavior. Based on their analysis, baseline and out-of-the-money speeds are expected to remain relatively fast versus conventional counterparts. They add, however, that based on recent historical performance, they expect prepayment ramps on GNMAs to be lower than conventionals early in their lives and then speed up as the loans age. The report also notes that fixed-to-subprime refinancing has slowed due to the increase in interest rates. Analysts anticipate, however, that this trend will stabilize due to "the insensitivity of subprime ARM start rates to yields on Treasurys and swaps." Also not seen as a factor to slowing speeds this time around is the FHA loan "assumability" given the substantial number of loan options for weaker borrowers.
In a recent report, JPMorgan, analysts reviewed recent prepayments of specified pools. Of note, low loan balance pools continued to show good call protection versus the cohorts and TBAs. They also observed that state level prepayments continued to show wide divergences. As an example, California 6s prepaid around 40% CPR versus in the mid-to-high teens in Texas. The analysts also reported that low FICO and/or high LTV pools continued to record fast turnover and thus offer protection against extension risk.
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