The 30-year conventional speeds in December were slightly slower versus expectations of a slight increase. 

FHLMC Gold speeds slowed more than FNMAs. With further declines projected in the coming months resulting from higher rates, conventional speeds should trend toward convergence on lower and cuspy coupons, Credit Suisse analysts said.

Particularly noteworthy was some slowing in the most refi-eligible coupons such as 4.5s and 5s despite the extra collection day. 

The 2008 vintages on 5s and lower also experienced relatively large decelerations versus other vintages, RBS Securities analyst Sarah Hu said. She added that this was likely caused by burnout of Home Affordable Refinance Program (HARP) streamlined refinancings. However, 2008 remains the fastest vintage.

Influencing speeds was a decline in refinancing activity by nearly 18% on average in November from October in response to slightly higher mortgage rates — 4.30% average from 4.23%. 
GNMA speeds increased around 5% versus a projected slowing of 3%. Meanwhile, 5.5% and 6% coupons were slower to nearly flat, which were in line with expectations, after increasing more than expected in November. Other coupons increased versus an expected slowing.

Overall, eMBS reported speeds on FNMA MBS declined 5% to 25.9 CPR, FHLMC Golds fell 7.1% to 28.6 CPR, and GNMAs were 3.6% slower to 18.9.

Gross issuance totaled $144.3 billion; paydowns amounted to $128.7 billion, resulting in net issuance of $15.5 billion. Only Freddie Mac experienced negative net issuance of $4.1 billion. 

For 2010, gross issuance totaled $1.266 trillion, paydowns $1.347 billion, and net issuance negative $80.6 billion.

January Outlook

Heading into the December report, consensus indicated that speeds will be slowing 15% to 20% in January from December. A factor influencing the report is a day count of 20 from 21 in December. Additionally, refinancing activity as indicated by the Mortgage Bankers Association’s Refinance Index plunged nearly 36% on average as 30-year fixed mortgage rates increased to an average of 4.71% from 4.30% in November. Updated forecasts will be out next week.

UBS analyst Jeffrey Ho noted that with less of the easier to refinance 4.5s and 5s available for capacity-constrained lenders to work with their attention can turn to the more seasoned low-risk borrowers.

Ho added that with fees at the GSEs set to increase in a few months as well as the potential expiration of HARP at the end of June, “high coupon borrowers will likely be trying a bit harder in the coming months to get refinanced.”

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