It came as no surprise to market participants that Freddie Mac prepayment speeds declined across the board in November, as seasonal and interest rate pressures weakened discount and premium speeds alike.

However, higher speeds for 8% securities issued in 1999 caused more of a stir, confirming a higher refinancing sensitivity to the brief refi window in late September.

"The spike-up in new 8% securities was the interesting part of the Freddie Mac data," said Evan Firestone, head prepayment analyst at Merrill Lynch & Co. "The obvious pattern here is that new conventional mortgages are highly sensitive to their first refinancing opportunity and these borrowers were not able to take advantage of the 1998 rate environment."

"The speeds of these cuspy issues were somewhat peculiar in two respects," added John Vibert, prepayment researcher at Credit Suisse First Boston. "First, in absolute terms, the magnitude of the declines (1% to 2% constant prepayment rate) were roughly in line with what we would expect purely on the basis of slowing housing turnover and the loss of one business day from the prior month. In addition, for 8s, FHLMC speeds generally remained faster than last month's FNMA speeds - oddly resilient given the 17% decline of the MBA refinancing index during the month of September."

Overall, at current mortgage rates, November's prepayments are close to the long-term average for most securities, with the exception of new issues, especially the 8% and 8.5% coupons.

According to Firestone, while less than $3 billion of new Fannie Mae and FHLMC 8% securities currently exist, there were an additional $700 million of FHLMCs issued last month, and Fannie Mae 8% issuance for November should top $900 million.

However, Fannie Mae speeds, released this Tuesday, should show even milder declines than the Freddie Mac data.

"Freddie Mac prepayments should now settle down to a slower pace with gradual decline," commented Warren Xia, a prepayment researcher at Banc of America Securities. "FHLMC prepayments indicated that as long as mortgage rates stay within 25 basis points of approximately 8%, prepayments will continue the decline as refi activity diminishes."

Most market observers say that Fannie Mae speeds for November, which are due out on Dec. 7, should also fall by 5% to 10% for most securities, although new 8s should fall by more than 20%.

"November prepayments on many GNMA securities, however, should fall by more than 20%," added Merrill's Firestone. "In October, many issuers performed a one-time buyout of delinquent loans from a range of Ginnie Mae coupons which boosted speeds for the month. With most of this activity in the past, speeds should fall to levels 10-20% below September's speeds."

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