The prepayment data for June, which is due to be released this Tuesday, is not expected to show peak prepayment speeds.
Kevin Jackson, vice president at RBC Dain Rauscher, said in a report released last Wednesday that except for newer production cash flows - 2002 and 2003 production - he expects the data to show only slight dips in speeds. He believes speeds will rise again in the next few months as the market absorbs current mortgage rate levels, adding that the lag appears to have gotten longer. He attributes a large part of that to some homeowners waiting for rates to fall further.
Meanwhile, Merrill Lynch said that in the July prepay report, which reflects activity in June, prepayments will probably increase but not reach their peak. Despite the fact that the Refinancing Index took off in the middle of May, not all of the mortgages were able to close in June. Further, the Freddie Mac survey rate did not reach 5.35 until the end of May, and did not reach 5.21 until the middle of June. Looking further ahead, Merrill said that August speeds are expected to be roughly similar. But by September, the market should start to witness declines in refinancings.
Meanwhile, for the week ending June 27, mortgage applications increased despite the further rise in rates. This was unexpected as analysts before hand expected application activity to hold steady or to dip. According to the Mortgage Bankers Association (MBA), the Purchase Index rose 6.6% to 438 and the Refi Index increased 5% to 8599. By type, conventional refis gained 4.4% to 9487, while government refis jumped 10.6% to 3930. The MBA also reported that the 30-year fixed rate contract rate rose 13 basis points to 5.23%.