The July prepayment reports released last Thursday - reflecting June activity - showed FNMA speeds increasing by a little over 20%, with the highest accelerations coming from 30-year 5s and 5.5s. By contrast, 15-year speeds were quite muted, rising by merely 10%. The comparatively slight rise could be attributed to the flatter yield curve lowering the refinancing incentives for 15-year collateral versus 30-year product.

Although high premium FNMA coupons were up only modestly, current and cuspy coupons were somewhat faster than anticipated, said Art Frank, head of mortgage research at Nomura Securities. For instance, 2004 production 5s were up 32% to 14.8 CPR in June from 11.4 CPR in May. Meanwhile, 2004 production 5.5s prepaid at 21 CPR in June compared to 16.1 CPR in May, a 34% increase. Also, 2004 vintage 6s went up to 31 CPR in June from 23.9 CPR in May, a 36% rise. "It is likely that some people who took advantage of the low rate environment in late May and early June got through by the end of June," said Frank. July speeds are expected to be up significantly to reflect the 2967 Refinancing Index level the week ending June 10, added Frank.

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