Buyout activity was evident in FNMA 2008 and 2007 premium coupon vintages. Speeds on 6s, 6.5s and 7s increased around 20% on those production years versus expectations of a 10% increase.
More seasoned vintages recorded just mild gains. The 2008-2006 vintage 5.5s also jumped sharply with the 2008 vintage prepaying at 20.1 CPR from 14.2 CPR previously and versus an expected increase to 17 CPR.
Barclays Capital analysts noted that Wells Fargo and Chase pools prepaid in the 30-40 CPR range from 6s through 7s — nearly twice as fast as the rest of the universe. This is not a surprise given that these banks have been one of the more aggressive in trial modifications and trial plans offered, according to the monthly report from the Treasury Department on the Making Home Affordable Program (HAMP).
FNMAs increased around 14% from September versus an expectation of a 12% increase. FHLMC Golds, however, were in line with expectations. The 6.5s and 7s prepaid flat to slower, while 2008-2007 vintage 6s increased around 10% — in line with projections. Percentage increases on 5.5%s were also less than FNMAs, while 5%s were modestly higher than FNMAs.
GNMA speeds increased around 6% versus a projection of a 3% increase. Speeds on 6.5s, 7s, and 2007 and older vintage 6s slowed modestly, in line to slower than expected. Meanwhile, 5.5s prepaid faster than expected at a 26% increase versus a +6% call.
Factors influencing the report were a decline in mortgage rates and a pick up in refinancing activity in September from August, while the number of collection days held steady at 21 days.
The 30-year fixed mortgage rates averaged 5.03%, down from 5.19% in August, while the Mortgage Bankers Association Refinance Index average surged 38% from August to September.
Overall, the universe of FNMA MBS prepaid at 15.7 CPR in October compared to 13.7 CPR in September, a 2% increase, according to eMBS. FHLMC MBS increased nearly 14% to 14.2 CPR, while GNMAs were essentially flat at 20.5. Issuance totaled $86.8 billion, paydowns $80.2bln, putting net issuance at just $6.6bln. Of note, FNMA net issuance was a negative $4.1bln.
In terms of November prepayments, several factors will impact speeds. Mortgage rates declined to an average 4.96% in October from 5.03% in September. However, refinancing activity slipped 1% on average. Day count will also be lower to 19 from 21. November speeds have been projected to increase slightly. Outlooks will be updated in the weeks ahead.
Credit Suisse analysts said they expect the trend of faster speeds on FNMAs relative to FHLMC Golds is likely to continue. Additionally, further increases from current levels as HAMP-related prepayments ramp up in coming months.
In its third quarter report, Fannie Mae said an increasing number of loans were being acquired from MBS trusts in order to pursue loan modifications. The GSE also noted that in the coming months, it expects the pace of new trial modifications initiated to moderate as servicers focus on converting modifications currently on trial to completed mods.
As a result of the difference between FNMAs and FHLMC Golds, Credit Suisse analysts believe FNMA/Gold 30-year swaps are likely to cheapen. They recommend buying higher coupon Gold/FNMA swaps.