Prepayment speeds are expected to decline around 16% for 30-year FNMAs in the November report to be released next month, with 2004 and 2003 6s expected to show the largest slowing at 18% to 20%. Speeds actually increased slightly in these vintages in October. UBS analysts attributed the gains in 6% coupons to borrower perception that this would be the last opportunity to refinance in the near future, considering sharply higher mortgage rates.

FHLMC Gold cohorts slowed, widening the difference in speeds for this coupon. However, UBS expects FNMA 6s will slow more than FHLMC Golds in the next report, pushing the differential closer to zero.

In mid-week comments, JPMorgan Securities analysts anticipate speeds to decrease 15% in November. Based on that prediction, paydowns are expected to reach $44 billion.

GNMA speeds are anticipated to report declines of around 13% overall, with the exception of 2003 and 2004 6s, which are predicted to slow 18% to 19%. UBS analysts suggest that the smaller decline versus conventionals is the result of originator refocusing on these borrowers.

Factors impacting the report include a 20 day count in November versus 20.5 in October, an increase in mortgage rates to an average of 6.07% in October compared to 5.77% in September, and a decline in the Refinance Index to an average of 1970 in October versus 2191 in September.

Looking further out, Street consensus is currently predicting speeds will slow around 10% in December and 15% to 20% in December.

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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