Conventional speeds were predicted to decline about 20% on average from October with GNMAs predicted to be down half as much.

Paydowns were estimated at $34 billion. Factors contributing to the decline were four less collection days and a decline in refinancing activity: the Mortgage Bankers Association's Refinance Index averaged 24% lower in October versus September in response to a 16 basis point increase on average to 6.20% on 30-year fixed mortgage rates.

Prepayment speeds, however, slowed more than expected for FNMAs, declining 32% on average for our sample, while FHLMC Golds were closer to expectations, down 23% on average. In October, speeds increased less than expected and there was some attribution to the longer appraisal process. 

November's report would seem to dispel that suggestion and place it mostly in the lap of the credit crisis which has made it more difficult for lenders to tap into lines of credit to fund loans, as well, as the strict underwriting standards.  

Declines on conventionals were generally uniform across coupons and vintages. Particularly regarding FNMA, prepayment speeds declined over 30% on 5s through 6s, and 24% for 6.5s about 10% more than expected.  The 7% coupons, meanwhile, were in line with expectations.

GNMA speeds also slowed more than expected, down 27% on our sample. Declines in 5s and 5.5s were 30% or more, similar to Fannies, while 6s and 6.5s were slightly less.     

According to eMBS, FNMAs prepaid at 5.5 CPR in November, down 2.7 CPR from October; Freddies prepaid at 6.4 CPR, down 2.3 CPR; and Ginnies 6.9 CPR, down 3.2 CPR. Gross issuance totaled $62.0 billion compared to $70 billion in the previous month. 

Meanwhile, paydowns amounted to $31.3 billion versus $43.1 billion in October, leaving net issuance for the month at $30.7 billion. GNMAs made up 70% of the amount and Fannies 25%.  Of note, FHLMC Golds net issuance was just $1.5 billion, which is an improvement from a negative $2.3 billion previously.

December speeds are expected to increase.  There are three extra collection days. Additionally, the Refinance Index averaged 1897 in November, up 31% from October's average with mortgage rates averaging 6.09% compared to 6.20% previously.

Heading into November report, expectations for December were for speeds to increase between 10% and 15%. However, outlooks are likely to be revised faster due to the sharp drop in mortgage rates and pick-up in refinancing activity following the Federal Reserve's announcement that it would buy up to $500 billion in MBS over the next several quarters. 

Credit Suisse analysts have already revised upward their outlook and believe speeds on 5.5s and 6s will increase between 20% and 40%, with further significant increases anticipated for January.

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