Rising Rates Finally Slow Down Prepay Speeds.

The speeds of 30-year fixed-rate agency mortgage-backed securities dropped 20% in the September reporting period after rising or holding steady in August.

The slowdown was attributable to higher mortgage rates, fewer business days, and the beginning of the fall slowdown in housing turnover, according to Bear Stearns.

The largest percentage speed declines came in the lower coupons, where 4.5s, 5.0s and 5.5s fell 20%-25%, compared with 10%-12% declines on 6.5s and higher coupons, according to Steven M. Bergantino, managing director of mortgage research at Bear Stearns.

However, discount speeds were still "well above historical norms," he said, citing the example of fully seasoned 5% coupons that prepaid 15 CPR vs. their historical level of 9 CPR.

"Moreover, these elevated discount speeds have persisted in the face of a pronounced flattening in the mortgage yield curve, providing a strong indication of the continued influence of cash-out refinancings on fixed-rate prepayments," the Bear Stearns analyst said.

Speeds on 30-year Fannie Maes averaged 19.4 CPR overall in September, down 4.5 CPR from their August level, while 30-year Freddie Macs recorded average speeds of 17.5 CPR, down 4.7 CPR, Mr. Bergantino reported. Average 30-year Ginnie Mae speeds stood at 25.2 CPR in September, down 4.4 CPR from their August level.

The speeds of 15-year mortgages in agency MBS also fell, but not quite as sharply as 30-year mortgages, recording a 15% decline overall, Bear Stearns reported. Mr. Bergantino noted that discount 15-year mortgages have prepaid well above historical norms, but not to the extent of discount 30-year loans.