Prepayments were modestly slower than expected in August. Speeds, on average, were expected to be about 10% slower, but FNMAs slowed 14% from July, FHLMC Golds 15%, and GNMAs by 13%. 

On top of the strict underwriting standards, horrible housing market, weakening economic and labor conditions, speeds were impacted by one less collection day in August, along with higher mortgage rates and lower refinancing activity.

For the month of July, the Refinance Index averaged 1289, down 6% from June's average of 1371, while the 30-year fixed mortgage rate, as reported by Freddie Mac, averaged 6.43% compared to 6.32%.

Within the coupon stack FNMA 5s declined 11% on average, with uniform declines across vintages compared with expectations of slowing just 5%. The 5.5s declined twice as much as expected at down 16%, and 6s slowed by 17% versus an estimate of 12%. 

Declines in FHLMC Golds were similar for these coupons as well. For GNMAs, declines on 5s and 5.5s were similar to conventionals' experience, though 6s declined slightly less at 14% slower versus the previous month. In 6.5s and 7s, speeds on FHLMC Golds were 15% to 16% slower, which more in line with projected slowing, while FNMAs and GNMAs were just 11%. 

eMBS had an aggregate prepayment speed on all FNMAs of 6.9 CPR, down 13.8% from July's average of 8.0 CPR. FHLMC Golds averaged 7.2 CPR in August compared to 8.5 CPR, or 13% slower. Lastly, GNMAs' prepaid nearly 17% slower at 8.0 CPR from 9.6 CPR July. Paydowns totaled $34.7 billion with gross issuance at $74.7 billion.  Net issuance, according to eMBS was $40.0 billion.

Specifically, Ginnie Mae gross issuance was almost as much as Fannie Mae: $27.5 billion versus $28.5 billion. Ginnie Mae net issuance, however, was more than twice as much at $23.5 billion versus $11.0 billion for Fannie Mae.

The outlook has had speeds lower by 7% to 8% in September. Contributing to the decline is lower refinancing activity in August as well as higher mortgage rates. The Refinance Index averaged 1052, down 18% from July's average. At the same time, the 30-year fixed mortgage rate averaged 6.48%, off five basis points from July's average. Day count holds steady in September at 21 days.

What the market really will be looking towards is the October report in light of the Treasury's actions this weekend. The government's takeover should help reduce mortgage rates and lead to a pick up in refinancing activity. Previously, October speeds had been projected to be up 1% to 2% as a result of an increase in the number of collection days to 22 from 21. 

Credit Suisse analysts believe speeds "are likely to increase by 15% to 20% from September levels." Wall Street revisions likely will be out in the next week or so.

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