Prepayments on FNMA 30-year MBS were in line with expectations. Overall, speeds increased 46% on average. However, the speed dynamics by coupon were much different than anticipated.
The prepayment report highlighted the credit impairment in higher coupons. The results also showed that the GSEs have not engaged in much buyout activity, despite the large number of delinquent loans.
The largest percentage gains were expected in 6% coupons, but speeds were higher in 5% and 5.5% coupons - increasing 60% and 66%, respectively, versus an anticipated 37% and 49%.
In 5s through 6s, the largest percentage gains were in 2007 and 2006 vintages, which was expected, although increases were greater than had been initially projected - over 60% versus the anticipated 41% to 47% area.
Older vintages prepaid much more slowly than expected, as did 6.5% coupons, while speeds on 7% 2007 and 2006 vintages slowed from November by around 20%. Walter Schmidt, analyst and senior vice president at FTN Financial, said that the report highlighted the increasing value of seasoning, "especially with the entire coupon stack above par."
FHLMC Gold 30-year MBS rose less than expected and FNMAs increased just 29%, although FHMLC Golds speeds declined less in November compared with FNMAs. Unlike FNMAs, 5% and 5.5% coupons were more in line with expectations, while 6s on up were slower. Like FNMAs, speeds on 7s slowed.
GNMA speeds surged more than expected, jumping 81% from November versus an expected 38% increase. Speeds on 5s and 5.5s were up 100%, with a large contribution coming from the 2007 vintages. While the percentage increases on 6s through 7s were less, they were up substantially more than comparable conventionals.
Gross issuance totaled $73.6 billion compared to $62 billion in the previous month. Meanwhile, paydowns amounted to $45.2 billion versus $31.4 billion in November, leaving net issuance for the month at $28.4 billion and less than the previous month's $30.6. Freddie Mac net issuance was a negative $900 million, while Fannie Mae's $15.1 billion just edged out Ginnie Mae's $14.2 billion.
For all of 2008, gross issuance was $1.07 trillion compared to $984 billion in 2007, while net issuance was slightly lower at $519.7 billion versus $584.9 billion in 2007.
The big story in this is the jump in Ginnie Mae issuance. Gross issuance this year for the agency hit $256.5 billion, up from $89.1 billion, while both the GSEs were lower from the previous year. As a percentage of total gross issuance, GNMA represented 24.1%, FNMA 46.3% and FHMLC Golds 29.6%. In 2007, the percentages were 9.1%, 55.1% and 35.8%, respectively.
January speeds are expected to soar by over 100% on conventionals and by over 60% on GNMAs from December's estimate, as mortgage rates plunged and refinancing activity picked up following the news that the Federal Reserve would be buying over $500 billion in MBS.
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