The more interesting story about September prepayments was it was in GNMAs  where speeds increased more than expected : 8% versus 1%. 2007 vintages were sharply higher in 5.5s, 6s and 6.5s surging a respective 80%, 63% and 28% from August's average.

Meanwhile, 5s also increased 10%. On average as well, 5% coupons in our sample were up 24% and 6s 11%.

Speeds on FNMAs and FHLMC Golds were less interesting and closer to expectations, especially for Golds. Speeds were expected to slow about 2% from August with speeds seen slightly higher in 2007 vintages and slower for the older vintages. FNMAs slowed 6% with 2007 vintages slightly slower on average, while Golds were in line overall. However, 2007 vintages surged nearly 12% with large gains in 6%s (16%) and 7s (28%) from the previous month.

Factors influencing speeds included lower refinancing activity in August as well as higher mortgage rates. The Refinance Index averaged 1052, down 18% from July"s average. At the same time, the 30-year fixed mortgage rate averaged 6.48%, off five basis points from July"s average. Day count held steady in September at 21 days. Mortgage rates dropped sharply in early/mid September following the GSE takeover and there was some influence of this on the less seasoned/cuspy vintages in the speed reports. For example, Morgan Stanley analysts noted that the mortgage pipeline has shortened as the origination pipeline is emptier given the tighter underwriting conditions.


eMBS had an aggregate prepayment speed on all Fannie Mae MBS of 6.6 CPR, down 4.3% from August"s average of 6.9 CPR. Freddie Mac MBS averaged 6.9 CPR in September compared with 6.9 CPR, or 4.2% slower. GNMAs prepaid at 9.7% CPR, 21.3% faster than August's 8.0 CPR average.

Paydowns totaled $35.2 billion, up from $34.7 billion in August, with gross issuance $4 billion higher from previous at $78.7 billion. Net issuance, according to eMBS, was $43.5 billion with GNMAs making up 47.6% of it versus 41.3% for FNMAs and 11.1% for Golds.


The outlook has speeds significantly higher in October in response to the drop in mortgage rates in September following the government's bailout of the GSEs and subsequent increase in refinancing activity.

Mortgage rates averaged 44 basis points lower to 6.04% in September compared with August's average, while the Refinance Index is up 64% to 1725. The month also has one extra collection day. Analysts have projected speeds to surge 58% in FNMAs from September's, while GNMAs are seen more modest at an increase about 21%.

The largest percentage gains are projected in 2007 and 2006 vintages, and in 5.5% through 6.5% coupons. Premium coupon speeds are also anticipated to be impacted by increased buyout activity from the GSEs, which has been on hold for sometime due to their capital situation, as well as, from delinquent refinancing through the Federal Housing Administration.

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