Speed Watch: March Prepayment Acceleration Fueled by Strong Pipeline Capacity.(Brief Article)

Writing in the Bear Stearns Prepayment Commentary, analysts Dale Westhoff and Bruce Kramer said the size of the prepay wave wasn't all that surprising.

"We believe that the biggest surprise in this report is not the magnitude, but rather the timing of the numbers," the analysts said. "It is clear that pipeline capacity is ample for the demand now in the market, and that transactions are being processed faster than ever before. Thus, we find that speeds in many cohorts are in line with our short-term estimates for April, i.e., they came in a month early."

In the Ginnie Mae sector, the analysts said there were "significant divergences" from the Fannie Mae numbers among new 7.0%-8.0% coupons, with Ginnie Mae 7.5s running behind equivalent Fannie Mae MBS by a constant prepayment rate of 12.7 CPR.

In the Freddie Mac report, released a few days earlier, the speed-up exceeded the Bear Stearns analysts' expectations. They noted that pre-1999 issues "responded more aggressively" than they had in recent months.

"Nevertheless, there continues to be a large difference in absolute speed between new and seasoned pools," the Bear Stearns analysts said. "This divergence has so far been the defining trend of this refinancing event, making it more similar to the 1996 refinancing scenario (a period when new mortgage rate lows were not reached) than the 1993 or 1998 scenarios (when new rate lows were reached)."

Seasoned coupons of 7.5% or higher are paying only 40%-50% as fast as comparable new issues, they said.

Noting that the mid-February to mid-March report does not cover the last week in March, when the effective mortgage rate ...