As expected, a lower day count and weaker seasonals contributed to a decline in February prepayments for FNMA securities. The overall slowing was in line with expectations for the more seasoned vintages - especially for 5.5% and 6% coupons. The 5% coupons declined slightly less than anticipated, while 6.5s speeds were almost in line with the expected slowdown of 7% or more.

By contrast, UBS analysts said in a report that the 2006 vintages recorded strong declines - 25% on average. They attributed this to flat or negative home price appreciation that is expected to keep speeds more muted on new production, since the refinance incentive is very limited. In terms of the older vintages, however, with the equity buildup in seasoned vintages, "speeds will remain relatively robust, although slower than what we saw in 2004 and 2005," UBS analysts said.

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