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March Prepay Speeds Show Impact from Credit Fees

Increases in loan-level price adjustment fees impacted speeds on both FHLMC Gold and GNMA MBS in March. 

FHLMC Gold speeds plunged nearly 15% as a result of the increase in Freddie Mac delivery fees on March 1.

Meanwhile, speeds were expected to show a slight increase as a result of a higher number of collection days during the month at 23, rising from 19. Declines were seen across the coupon stack, with the largest in the lower portion of the stack (4.5s through 5.5s) at between 17% and 26% as there is no or not enough refinancing incentive.

As a result of the plunge, FHLMC Gold speeds have converged with FNMAs and, in some cases were below. However, the increase in Fannie Mae's delivery fees took effect on April 1 and the impact from that should be felt in the next prepayment report. 

GNMAs slowed more than expected — 12% versus a 5% projected decline — and is likely related to the increase in the mortgage insurance premium that becomes effective on April 18.

BNP Paribas noted that the fees are based on the pool issue date, and so the "lenders likely price fees into loans well before pool issuance." The 5s and lower were down 15% to 20%, while higher coupons slowed around 10% to 15%.

FNMA speeds were in line with expectations of slightly faster speeds. However, it came on faster than expected speeds in 6s through 7s. The boost was partly from the higher day count, and slower than projected CPRs in 5s and below. 

For the most part, the higher day count was more than offset by the 8% decline in refinancing activity on average in February from January as the no-point mortgage rate was well above 5%.

Overall, eMBS reported speeds on FNMA MBS were unchanged at 15.2 CPR in March, while Freddies and Ginnies dropped 17% to 14.4 and 10 CPR, respectively.  Gross issuance totaled $89.3 billion; paydowns amounted to $72.3 billion, with net issuance at $17.0 billion.      

The outlook for April speeds (released on May 5) was for a 10% decline on average for conventional 30-year loans and by 5% on GNMAs. 

Factors influencing this report are a lower day count of 20 days, which will more than offset the modest increase in March refinancing activity as mortgage rates eased from their recent highs. More on the near-term prepayment outlook will be out next Tuesday.

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