Last week, the MBA Refi Index came in at only 1200. Experts say this confirms that the market saw the peaks in prepayments last month, and if there will not be another rally in rates, prepayments are going to subside pretty substantially in the near term.

Aside from refis slowing down - the market is not seeing a new supply of passthroughs from refis - the peak of housing turnover or the surge of applications to buy homes, which typically happens in May and June, is over. Because of these two factors, observers have seen a considerable decline in the selling by mortgage originators into the forward market in the last couple of weeks.

According to market participants, the slowdown in the TBA market, combined with strong paydowns to investors, creates a favorable near-term technical situation for the mortgage market. Because of the paydowns, investors will have a lot more money to reinvest; for GNMAs and Freddie Golds, paydowns will be received on July 15, and for Fannie Maes, July 25.

Inevitable comparisons

Last week was also the first time that the FHLMC and FNMA reports were synchronized. Now that Fannie and Freddie accounting are harmonized, market players say that there will be more scrutiny placed on the prepayment differences between Fannie and Freddie speeds.

Whereas in the past it was possible that Fannie and Freddie had differing collateral, the difference might have been obscured because it was hard to reliably adjust for the different interest rates. But because of the synchronization of reporting schedules, these adjustments don't have to be done, so if there are small differences between Fannie and Freddie collateral, these would presumably show up in prepayment speeds. If Freddies and Fannies show different prepayment behavior, sources say the difference will be priced accordingly.

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