June CPRs were slower than the negative 3% to negative 4% that was expected. Instead, speeds declined 10% on average for Fannie Mae, 13% for Freddie Mac, and 8% for Ginnie Mae securities.
Speeds on conventional 5.5s and higher, in particular, recorded the greatest percentage declines, averaging 10% to 15% slower on FNMAs (15% to 20% on FHLMC Golds ) versus expectations of negative 4% to negative 7%.
For GNMAs, 2007 vintages experienced the largest percentage decline at 24% on average, with 2006 vintages slowing 10% on average.
Reasons for the slowing were a decline in refinancing activity resulting from higher mortgage rates, tight lending standards, ongoing housing weakness and low consumer confidence.
The Mortgage Banker's Association Refinance Index averaged just 2036 in May, down 15.6% from April's average. In addition, higher delivery fees associated with a borrower's LTV and FICO that became effective on June 1 are also seen as a contributing factor to the slowing, Lehman Brothers analysts said.
eMBS reported the aggregate CPR on 30-year FNMAs was 9.2 CPR compared with 10.5 in May, a decline of 12.4%. The drop in FHLMC Golds was 9.3 CPR versus 11.0 CPR previously, down 15.5%; and GNMA's prepaid at 10.7 CPR, an 18% decline from the 13.1 CPR recorded in May. Total agency MBS paydowns were $43.9 billion, down from $46.2 billion in May, and issuance was $106.8 billion versus $119.1 billion.
For the July prepayment report, further slowing in speeds is expected. On average, 30-year fixed mortgage rates averaged 6.32% in June compared to 6.03% in May, and the Refinance Index was down 33% from May's average. A higher day count -22 versus 21 days- provides a slight offset.
Currently, JPMorgan Securities expects a decline of 7% to 10%, while Credit Suisse has a more aggressive outlook of a drop of 15% to 20% on 30-year coupons.
