Prepayment speeds for March increased less than 20% for most coupons and vintages of FNMA and FHLMC Gold securities. The 2006 5.5s recorded the strongest increase at 30% from February. Analysts believe that the less-than-expected increase in speeds is because of the housing market slowing and underwriting standards tightening.
Previously, March speeds were expected to jump 25% to over 30% in March as the period included three additional collection days versus February (22 versus 19), while seasonals started to pick up. It was also expected that some of the application activity that hit in early March (when the Refinance Index hit its highest level since September 2005 at 2312) would have closed in March.
GNMAs increased even less compared with conventionals, at around 9% overall versus expectations of an average 24% rise. Showing the strongest gains were 5% coupons and unseasoned to moderately seasoned 5.5s, and seasoned 6.5s. These sectors increased around 15% to 20%.
Credit Suisse analysts estimate paydowns at $41 billion, up over 20% from nearly $35 billion in February. They calculate net issuance at $21 billion, which is down sharply from $30 billion in the previous month. This reflects conventional issuance at $26 billion, GNMA at $0.2 billion and 15-years at -$5.4 billion.
In terms of the April prepayment report, speeds are expected to remain steady as higher refinancing activity in March resulting from lower mortgage rates is offset by a two-day decline in the number of collection days.