Prepayment specialists had their eyes on Ginnie Mae premiums last week, as speeds for GNMA 1998 and 1999 premiums were very fast, mostly due to a higher-than-usual rate of Ginnie Mae servicers buying out delinquent pools.
Additionally, the GSE had to issue two "tapes" - a record of pool factors showing paydowns taking place for the previous month - because the first tape was incorrect, market sources say.
The most recent Ginnie Mae prepayments showed that 8.5% product from 1999 came in at 50 constant prepayment rate (cpr), which is a high level for relatively new-production GNMAs.
"Ginnie Mae premiums, in general, are looking very unattractive," said David Montano, director of research at Credit Suisse First Boston. "The production for 2000 is fast too, mainly due to streamlined refinancing and buyout acitivity in a relatively strong housing market."
Even though it is a sporadic event, Ginnie Mae servicers can buy out delinquent pools at par if they are 90 days delinquent. Then, they can reissue them as TBAs and sell at a premium dollar price.
"But this has become a worse problem than normal," Montano said. "The servicer has become more aggressive in buying out the loans because of a strong housing market."
Montano predicts a 25% to 30% increase in Fannie Mae speeds for 8s and 8.5s when that prepayment data is issued in a few weeks. There could potentially be an increase of between 40% and 45% for Ginnie Maes, or possibly more, he said.
Furthermore, a bid for short-dated U.S. Treasurys caused by a hobbled equities market would lower U.S. yields and cause even more concern about prepayments within mortgage-backed securities, Montano added.