Fannie Mae and Ginnie Mae mortgage-backed securities prepayment speeds fell victim to a lower number of trading days in the month of July, resulting in declines across most coupons.
Speeds declined alongside a slowdown in the housing market, as new home sales saw a drop, while existing home sales are increasing. "It is the sales of existing homes that trigger prepayments," said Warren Xia, a prepayment specialist at Banc of America Securities.
In the discount sector, Fannie Mae 6s and 6.5s decreased by 9% and 12% respectively, with newer vintage securities prepaying slightly slower. Newer 1999 7.5s prepaid at 5.8% constant prepayment rate (CPR), according to Rajan Dabholkar, a prepayment analyst at Credit Suisse First Boston.
Ginnie Mae 6s through 7s with vintages 1996 and earlier posted slightly faster speeds than Fannie Mae counterparts, at 0.5% CPR to 2.0% CPR. Overall, Ginnie Mae discount speeds fell 10% to 15%, slightly faster than expected, according to a PaineWebber report.
Premium speeds were also very much in line with expectations, and "attributable to the decline in the housing turnover component," said Xia.
Fannie Mae 8.5s and 9s decreased by 7% and 2% respectively, with the 1999 vintage 8.5s slowing by about 12% over the last five months. However, 2000 vintage 9s posted a 43% acceleration, mostly taking advantage of the 50 basis-point run-up in rates in late May and early June, according to the PaineWebber report.
Ginnie Mae premiums, however, posted some significant acceleration speeds, with 1999 vintage 8.5s prepaying at a rate of 29.4% CPR, the fastest among any agency pool. "As mortgage rates rallied in June, buy-out economics could have improved on premium MBS, which could have led to their significant acceleration," Dabholkar said.
Speeds on all Ginnie Mae 8.5s, on the average, sped up by 5% to 30%. Seasoned Ginnie Mae premium 9s, vintage 1994 and younger, accelerated 8% to 25%.
With three more collection days in August, prepayments are expected to accelerate slightly, with Ginnie Maes and Fannie Maes expected to increase by 5% to 15%. "Premium speeds will likely increase in August, reflecting the lower mortgage commitment rates during the second half of June and first half of July," said Xia.
"At current rates, a 25 basis point to 35 basis point rally will put new 30-year 8s, 1999 and 2000 vintage, in a refinancing zone, and could result in a 15% CPR to 18% CPR in September," added Dabholkar, noting that seasoned premiums are unlikely to show prepayment activity.
