August prepayments increased slightly less than expected at 8% to 9%, versus a consensus forecast of around 10%. While the aggregate number is uneventful, the breakdown is a bit more interesting. For example, speeds on FNMA 4.5% and 5% coupons were predicted to increase 10% to 14%. However, speeds were up just around 5% for 2003 vintage 4.5s and 5s, while moderately seasoned 5s rose 7% to 9% from July. Lehman Brothers analysts believe the slowdown in housing is the primary reason for the smaller than expected increases. They added that their view is that the slower housing put a cap on discount speeds beginning in April, which appears supported by the recent HPI report from the Office of Federal Housing Enterprise Oversight. Based on this, they anticipate that the third quarter HPI report will be even more disconcerting based on the prepayment experience seen in July and August.
Higher coupons were more in line with expectations, though 2005 vintage 5.5s and 6s were faster at up 15%, versus expectations of 10% to 12%.
Speed increases on FHLMC Golds, meanwhile, were generally above FNMA. While there are a few anomalies, the lower coupons generally prepaid in line with conventional expectations while higher coupons were faster.
Turning to GNMAs, speed increases on the discount coupons were generally in line with consensus with the exception of 2003 4.5s and 2005 5s where percentage increases from July were flat to negative. In the higher coupons, 6% coupons in particular were much faster than expected. With a few exceptions, GNMA speeds remain much faster than conventional cohorts.
According to Credit Suisse analysts, paydowns are estimated at $37 billion compared with $34 billion in July. Meanwhile, 30-year fixed net issuance totaled about $25.8 billion in August, analysts said, down just slightly from $26 billion in the previous month. The 15-year MBS net issuance was -$5.7 billion.
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