Conventional prepayments increased 1% to 2% on average versus initial expectations of slowing around 10%. 

Specifically, 2005 and older vintages recorded the largest percentage increases at about 8%. Higher coupon 2008 vintages (6.5s and 7s) prepaid slightly faster in March versus February, while lower coupons were just modestly slower. The 2007 vintages slowed more in line with expectations of down 10%. 

Speeds were expected to slow as a result of February's decline in refinancing activity as borrowers waited for lower mortgage rates as well as the terms of President Barrack Obama's Housing Plan. 

The Mortgage Bankers Association's (MBA) Refinance Index averaged 3469 in February compared with 5297 in January.

Meanwhile, 30-year fixed mortgage rates averaged 5.13% in February versus 5.05% in the previous month. A factor that partially offset this was a higher day count: March's 22 versus 19 in  February. 

However, it appears that originators were able to close loans in a more timely manner in March as refinancing activity ramped up starting in the first week of March when the President released guidelines for his housing plan and in mid-March when the Federal Open Market Committee said it would increase its purchases of MBS and buy longer Treasurys to drive mortgage rates lower. 

From the end of February through the week ending March 20, the MBA's Refinance Index more than doubled to 6363 from 3063, while the 30-year fixed mortgage rate fell only nine basis points during that time to 4.98%. 

Deutsche Bank Securities analysts also said there was less fallout in applications than expected given the rate rally and jump in refinance activity. 

GNMAs were also expected to decline around 7%. However, speeds increased 8%. The 5s and 5.5s recorded slight gains overall, while 6s and higher increased over 10%.  Like conventionals, the largest percentage increases were in 2008 vintages and 2005 and older. 

According to eMBS, FNMAs prepaid at 21.7 CPR, down just 0.5 CPR from February, FHLMC Golds prepaid at 24.1 CPR, lower by 0.4 CPR; while GNMAs increased 1.2 CPR to 25.6.

Gross issuance totaled $178.1 billion compared to $100.3 billion in February, while paydowns were $106 billion, similar to the previous month. Net issuance was a positive $72.2 billion versus -$5.3 and -$$16.9 billion in February and January.

Speeds are projected to increase between 15% and 20% and then surge over 50% in May.  Specifically, 2008 6s are predicted to prepay at over 40 CPR in the May report (released in June), just under 40 CPR on 6.5s, and in the mid-30 CPRs for 7s.  Speeds on FHLMC Golds are expected to be over 30% and higher than FNMAs as a result of their elimination of LLPA. 

Deutsche Bank analysts, however, expect these speed areas could be reached as soon as the April report.  

A factor they point out in support of this is the increase in Federal Reserve purchases in recent weeks by $10 billion a week. Update outlooks will be out over the next week or so. 

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