Speeds on 30-year FNMAs slowed about 5% to 10% in June compared with previous expectations that speeds would remain the same in the lower coupons or decrease by up to 5% in 6.5s. The largest percentage of slowing was recorded in 6s and higher. The Freddie Mac prepayment report was very similar to its rival Fannie Mae's.
Speeds on GNMAs were more in line with expectations overall, declining about 4% in June from May. This is true for most coupons and vintages with the exception of 2005 and 2006 6s, which slowed 19% and 14%, respectively, and 2006 5s, which prepaid 14% faster than in May.
The slowdown in prepay speeds happened despite a higher day count (two days) and just slightly higher mortgage rates on average. For example, the 30-year fixed mortgage rate averaged 6.26% in May versus 6.18% in April, while the Refinance Index average slipped just over 1% to 2003 from 2030. Tighter lending standards, reduced cash-out refinance activity and slowing home price appreciation are the factors helping slow down prepayments.
According to Credit Suisse, paydowns are estimated at $38.1 billion compared with $40.8 billion in May. Estimated fixed-rate net issuance increased to $35.3 billion, up $2.8
billion previously, they said. Conventional 30-year net issuance totaled $36.9 billion. GNMAs were $3.0 billion, while 15-year issues amounted to -$4.60 billion.
In terms of July prepayments, speeds are expected to slow around 10% compared with the June report. While day count holds unchanged at 21 days, mortgage rates averaged 40 basis points higher in June than in May and the Refinance Index averaged 12% lower. - Sally A. Runyan/IFR MortgageData
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