For the July prepayment reports released last Thursday, the slowdown in speeds was in line to slightly less than expected.

For instance, Street consensus before the release of the reports was that slowing in FNMAs for 4.5% to 6.5% coupons was projected at 14%. The actual slowdown was 13% and 11% for FHLMC Golds. Meanwhile, GNMAs slowed 6% versus a projection of 9%.

Specifically, for conventional 5% coupons, speeds slowed 8% to 9% on average versus expectations of 4%. The slowdown in speeds is attributed primarily to the ongoing weakness in the housing market. In GNMAs, prepayment speeds averaged 4% faster versus expectations of slightly slower.

Notably, the largest percentage declines were mostly in the 2007 and 2006 vintage 6% coupon. JPMorgan Securities analysts noted that the coupon has moved out of the refinance window as a result of the sharp sell-off in mortgage rates.

In June, the 30-year fixed mortgage rate averaged 6.32% compared with 6.03% in May, which contributed to the Refinance Index dropping 33% on average.

Data from eMBS showed the July CPR on FNMA MBS was 8 CPR, down 13% from June's 9.2 CPR.

FHLMC Golds were 8.5 CPR in July versus 9.3 CPR in July, down 8.6%. GNMAs were 9.7 CPR, off 9.3% from June's 10.7 CPR.

Paydowns totaled $40 billion in July compared with $43.9 billion in June. Issuance was $77.7 billion versus $106.8 billion previously.

Meanwhile, Morgan Stanley enumerated some notable observations from the July prepayment report, including the refinancing curve continuing to flatten, 2008 production premiums prepaying faster and premium 15-years are still prepaying faster compared with premium 30-years.

Analysts also expect speeds to slow down further for the August reports based on the higher lagged mortgage rates. JPMorgan analysts believe that, unless there is some major government refinancing incentive, "prepayments are on schedule to reach new record lows by the end of the year."

(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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