FNMA prepayments were down just slightly more than expected in January. In particular, 5% coupon speeds were similar to expectations, while higher coupons slowed more than expected.

For example, 5.5s declined about 9% from December versus an anticipated slowing of less than 5%. Higher coupon speeds were expected to be unchanged to slightly higher, but slowed around 5%. Lehman Brothers analysts suggested that the slowing in premiums could be a result of borrowers having a delayed response to the November rally, which could, in part, be caused by less attractive refinancing options. The lack of more attractive refinance alternatives is driven by MTA rates gaining 100 basis points since last March.

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