The agency prepayment reports for January were released last night. The report showed, according to FTN Financial analysts, the U.S. government has been successful in the near term at least, to add some liquidity to the mortgage finance sector. 

For the 30-year market, FNMA, FHLMC Golds, GNI and GNII speeds were faster by 107%, 108%, 45% and 46%, respectively, reported FTN analysts.  Currently, the one-month speeds stand at 17, 18, 23 and 25, which increased around threefold from the nadir in last November's report.

In 15-year mortgages, FTN said that the percent increases and the absolute levels were much more subdued.  FNMA, FHLMC Golds, GNI and GNII came in at the following one-month speeds: 12, 12, 11 and 14.  

ARMs were still faster compared with their fixed-rate counterparts, according to FTN. However, these securities showed much lesser percent increases compared with 30-year loan and were roughly in line with the percent increases in 15-year mortgages.  FNMA, FHLMC Golds and GII ARM one-month speeds are currently at 25, 17 and 21, respectively

Even though aggregate speeds were up sharply, the trends were hardly uniform. Recent vintage (ie 2006-2009) 4.5s through 5.5s had the biggest rise by far.The largest percent increase by cohort was 2006 vintage FNMA 4.5s, which went up by 396% to 19 CPR. 
By contrast, 2004 vintage 4.5s were 83% faster at 8 CPR. 

According to analysts, from a coupon standpoint, the fastest absolute speeds were in 6.0s, at 21 and 23, respectively for FNMA and FHLMC Golds. But, that was only slightly faster compared with 5.5s (20 and 20) and much faster than 6.5s (13 and 16). 

Analysts said that they've seen some evidence of the highest quality borrowers taking advantage of lower rates, although there is also strong indication that lower credit quality borrowers are still on the outside looking in at historically low rates.

They added that the opposite is the case with GNMA, were GNI and GNII 6.0, 6.5 and 7.0 continue to come in quite fast in the 30 CPR range for GNI and almost 40 for GNII. 

The attributed this to buyout-related activity and will continue to put pressure on GNMA/Conventional swaps. 

The bottomline, according to FTN analysts, was that speeds were much faster for the recent vintage "lower" coupons (nothing is at a discount) pushing the overall result much higher. However, there is still a lot of call protection available in higher coupon trades on the conventional side such as low FICO, high LTV and loan balance, FTN stated.

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