A sharp decline in prepayments is expected in November, to be reflected in the December prepayment reports. Street consensus currently predicts speeds on 30-year FNMAs to slow around 16% to 17% from October. Factors impacting the report include November's 20 business days versus 20.5 in October; an increase in mortgage rates to an average of 6.07% in October versus 5.77% in September; and a decline in the Mortgage Bankers Association Refinance Index to a 1970 average in October versus 2191 in September. Preliminary estimates show prepayments decreasing around 10% in December and 20% in January, meaning speeds of around 12 CPR in January from 20 CPR in October.
David Montano, head of mortgage research at JPMorgan Securities, expects a 15% decrease in November prepayments, citing factors including seasonal turnover slowing by 8% to 10%. Consequently, he estimates paydowns to be $44 billion and net fixed-rate supply to total $18 billion.