Speed Watch: Have MBS Prepayment Speeds Peaked for This Interest Rate Cycle?(Brief Article)

Prepayment rates for agency mortgage-backed securities rose broadly in April, but they may have hit their peak, according to analysts at the Bear Stearns Prepayment Commentary.

In the Fannie Mae report, seasoned MBS issues showed the fastest speedup, both percentage-wise and in absolute constant prepayment rates, which analysts Dale Westhoff and Bruce Kramer said is consistent with historical patterns.

They pointed to "notable strength" in the speeds of seasoned Fannie Mae 6.0s and 6.5s - 11.4 CPR and 16.3 CPR, respectively.

"With minimal impact from the recent lows in rates, these seasoned issues suggest that the U.S. housing market remains robust," the analysts said.

The biggest difference between Fannie Mae and Ginnie Mae MBS speeds showed up in the new Ginnie Mae 7.0% and 7.5% coupons, where speeds rose about 2 CPR, well behind those of comparable Fannie Maes, according to the analysts.

Meanwhile, the analysts pointed to the significant disparity between the speeds of the Fannie MBS universe and those of so-called True TBA securities, which Bear Stearns calculates based on collateral representative of what it says investors in to-be-announced securities are most likely to be delivered.

"Without the moderating influence of low loan balance, Alt-A, and New York pools, all of which are less prepayment sensitive in a rally, True TBA speeds outpaced the universe by as much as 11.4 CPR (True TBA 7.5s with 2029 WAM paid 56.4 CPR, versus 45.0 CPR for the universe)," the analysts reported.