Conventional speed increases on average were in line with expectations. However, speeds on 5% coupons and lower were much faster than projected, while 6s through 7s were slower. 

Contributing to the jump in speeds was a 24% increase on average in refinancing activity as measured by the Mortgage Bankers Association's Refinance Index in response to a 20-basis-point decline in 30-year mortgage rates to 4.51% as reported by Freddie Mac. 

Another factor helping the lower stack was an increase in the number of collection days to 22 versus 21 in the previous month.

Certainly the 5% coupon had enough incentive for credit eligible borrowers to refinance – around 70 basis points, according to Sarah Hu, director in agency MBS strategy with Royal Bank of Scotland.

However, the incentive for 4.5% borrowers to refinance into a 30-year mortgage was much lower at just 20 basis points. Hu suggested that some of these borrowers may have refinanced into a 15-year fixed rate and, to a lesser extent, ARMs, citing the most recent Quarterly Product Transition Report by Freddie Mac

The GSE reported that for 1Q11 an increasing share of refinancing borrowers were in fact shortening their terms by moving into 15- or 20-year mortgages. For 1Q11, 34% of borrowers refinanced out of a 30-year into a 15- or 20-year – the highest share since 1Q04 due to sizeable rate difference.  In 1Q11, the difference was 3/4s of a percentage point, while in 2Q11 it was even wider at an 81-basis-point average difference.

A more major factor cited, however, was the government's Home Affordable Refinance Program (HARP).

Specifically, the three-month extension on Fannie Mae pools from March to May 2009 resulted in speeds on pools issued in those months jumping substantially. 

To illustrate, JPMorgan Securities analysts pointed out the March and April 2009 5% pools surged 13-17 CPR, while the rest of the cohorts increased just 2-4 CPR.  For 4.5s, the new "HARP-able" pools led to a jump of 7-9 CPR versus 2 CPR for later vintages.

GNMA I speeds prepaid faster than anticipated as percentage increases were higher than projected on 6% coupons and lower. 

Expectations were that the recent increase in FHA's annual MIP fees would limit refinancing; however, this doesn't apply to VA loans, which JPMorgan analysts believe might be largely responsible for the gains.   They also noted that 20% of GNMA originations are Department of Veterans Affairs borrowers.

Overall, eMBS reported speeds on FNMA MBS rose 17% to 15.0 CPR in June, FHLMC Golds 16% to 14.2 CPR, and GNMAs 14% to 9.6 CPR. 

Gross issuance totaled $69.9 billion and paydowns amounted to $70.7 billion. This leaves net issuance at negative $0.8 billion.

Net issuance for the GSEs was a negative $11.6 billion combined, while GNMA remained positive at $10.9 billion.

For the second quarter, net issuance averaged $1.8 billion per month, down from a $22 billion per month average in the first quarter.

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