Conventional prepayments in July slowed 16% and 19% overall for 5s through 6.5s for FNMA and FHLMC Gold 30-year MBS — in line with expectations.

Additionally, speeds by coupon and vintage were also close to expectations. A couple of exceptions included a 20% jump in speeds for FNMA 2007 7s — which were projected to remain almost the same, and overall declines in speeds of 7% and 11% in FHLMC Gold 6.5s and 7s versus a predicted slowing of 1%-2%.

Factors influencing the report were a 56 basis point jump in 30-year fixed mortgage rates on average in June to 5.42%, and a corresponding 49% decline in the Refinance Index to a 2051 average for that month. Day count was steady at 22 days.

GNMA speeds also printed near projections for the most part with the exception of 6.5s that prepaid faster than expected, declining just 2.5% versus a projection of nearly a 12% decline.

According to eMBS, FNMA MBS prepaid in aggregate at 18.3 CPR in July versus 22.6 in June, down 4.3%, FHLMC Gold MBS prepaid at 19.3 CPR, down from 24.4 previously, or 21% lower, and GNMA at 19.2 CPR, down 20% from 24 CPR.

Fannie Mae gross issuance totaled $76.9 billion in July, paydowns were $46.3 billion, leaving net issuance at $30.6 billion. Gross issuance was down substantially from the previous two months of $127 plus billion that was related to seasoned loan securitizations.

Gross issuance for Freddie Mac was $42.8 billion, paydowns were $32.4 billion, leaving net issuance at $10.3 billion. Finally, GNMA issuance was $44.2 billion, paydowns were $13.3 billion and net at $31 billion. All together, issuance amounted to $164 billion, paydowns $92 billion, and net issuance $71.9 billion.

Barclays Capital analysts said that delinquency buyouts related to the successful completion of trial modifications appeared for the first time in the July report with some slight increases in the modestly seasoned 6.5 and 7 coupons.

They expect this trend to continue in the next report. Credit Suisse also projects that Home Affordable Modification Program (HAMP)-related prepayments will impact the 6.5 and 7 2006-2007 vintages, particularly beginning in the September report, which will be released in October.

Specifically, they have speeds on these coupon/vintages prepaying 10-17 CPR faster from July by the October report (released in November).

Looking ahead, conventional prepayment speeds have been projected to decline 10% overall in our sample in August.

While average mortgage rates improved to 5.22% in July from 5.42% in June, refinancing activity averaged 1933, down 5.8%. Updated projections will be out in the next week or so.

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