The prepayment report for February released last night showed the fixed-rate agency market paying at 24% CPR, with roughly $70 billion in pay downs. This figure is a 35% rise versus last month.

In its prepayment commentary, JPMorgan Securities noted that the number of outstanding agency fixed-rate mortgage-backeds fell by $10 billion. The unadjusted Mortgage Bankers Association (MBA) Refinancing Index rose by 10% from January to February. There are four more collection days in March versus February, so the rise last month is considered significant.

The firm predicts pay downs to be at $88 billion in the March report, increasing by about 25%.

Prepayments for Fannie Maes rose across the coupon stack, with the biggest increases seen in the 5.5% coupon (rising 7 to 8 CPR) and 6.0% coupon (increasing 10 to 12 CPR).

Bear Stearns said that new 5.0%, 5.5%, and 6.0% 30-year MBS are now paying 6, 17, and 34 CPR, respectively. Based on customer feedback, these figures were greater than expected and may have an unfavorable impact on MBS pricing in 5.5s and 6s. Above 6s, increases were a little less. Prepayments on 6.5%, 7.0% and 7.5% rose by an average of 6, 4, and 3 CPR, respectively, said Bear.

Analysts said that the numbers were very consistent with their forecasts. They were on the high end of Street expectations.

Bear says the results for the February prepayment report reflect three factors. These are: excess capacity in the mortgage pipeline, doubling of application volume since early January and attractive hybrid mortgage alternatives.

Analysts added that excess capacity in the mortgage pipeline has minimized the lag between interest rates and reported prepayments to just four weeks, explaining that if the current lag were even six weeks, February's report should have shown little, if any, pick-up in speeds.

With application volumes at roughly half the levels they were during the first six months of 2003, lenders are able to process deals in considerably less time. Based on the shorter lag phenomenon and the four more business days next month, Bear Stearns predicts prepayments to rice again in the March report by about 15%.

In terms of Golds, they continued to prepay more slowly than Fannie Maes for the fifth consecutive month. JPMorgan said that Gold 5s and 5.5s were roughly 1 to 2 CPR slower compared to their Fannie Mae counterparts. But 2002 Gold 6s came in at 34 CPR, which is 4 CPR less than FNMA 6s. Aside from this, 2002 Gold 6.5s came in at 39 CPR. This is 4 CPR behind FNMA 6.5s.

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