Monday will see the release of prepayment reports from Freddie Mac, Fannie Mae and Ginnie Mae. While GNMA and FNMA speeds are expected to slow, FHLMC is expected to exhibit substantially faster speeds with the one-time transition period involving 1.5 months worth of paydowns driving speeds (ASR 06/25/2001).
As mentioned, Fannie and Ginnie speeds are expected to slow. UBS Warburg said that most coupons and vintages are going to slow 10%-20%, followed by declines of mostly 10% in July.
Meanwhile, Bear Stearns said that speeds on unseasoned and seasoned 7s through 8.5s will decline 10-15%. FNMA discounts are projected to stay essentially unchanged while GNMAs will be mixed, with 6s remaining the same and 6.5s slowing 10-15%. Bear, meanwhile, is projecting speeds to slow 5-10% in the July report while both firms forecast a slight increase in August.
In related news, the Bond Market Association (BMA) recommended that dealers and vendors report prepayment numbers as a normal month, despite the additional eleven days reporting period brought about by Freddie's change in accounting cycle.
By not factoring in the prepayment figures to show the extended reporting period, calculations for the month will reflect the actual cashflows that people are going to receive. In other words, the total return on MBS is impacted as if all these prepayments happened on a single month. The BMA feels that this approach would be "the least disruptive course" for dealers and vendors to take.
