November prepayments were not as bad as investors feared, given the collision of elevated refinancing activity on lower mortgage rates in response to QE3 and the rush by servicers to close loans before guarantee fees increased on Dec. 1. In fact, 2010 and 2011 FNMA 3.5% and 4.0% coupons rose slightly less than projected, while higher coupons were in line to slower. Constant prepayment rates (CPR) on these vintages, however, were at a record high.

In aggregate, 30-year FNMA speeds were 4.5% lower from October in IFR Markets' sample versus an expected 3% slowing. The story was similar in Freddies, which declined nearly 7%, versus a 4% projection. For all MBS, speeds on FNMAs declined 6.1% to 27.9 CPR and Freddies 7.8% to 28.3 CPR which were also less than the 9% indicated by two fewer collection days in the month. J.P. Morgan suggested that expansion in lender capacity may have partially offset the effects of a lower day count. At the same time, constraints remain and Barclays said this may have kept lower coupons from increasing as much as was expected.

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