Analysts See 'Modest' Growth in February Prepays.(mortgage backed securities)

Prepayment rates for conventional 30-year fixed-rate mortgages in agency mortgage-backed securities recorded "modest gains" in the February reporting period, according to Bear Stearns & Co.

Overall speeds for 30-year collateral came in at a constant prepayment rate of 11.2 CPR for Fannie Maes, up 0.5 CPR from January's level, and 9.7 CPR for Freddie Macs, up 0.7 CPR, Bear Stearns analysts Dale Westhoff and V. S. Srinivasan reported.

Prepayments on 30-year Freddie collateral rose a little more than for corresponding Fannie collateral, but continued to be "marginally slower" across most coupons and vintages, the analysts said.

The main source of the differences between Fannie and Freddie speeds is that Fannie Mae pools have a higher percentage of loans with nonstandard borrower characteristics, the analysts said. "Absent a slowdown in the housing market, these differences are likely to persist," they observed.

For 15-year mortgages, speeds increased less than for 30-year collateral. Overall, 15-year Freddie Mac speeds rose from 8.3 CPR in January to 8.9 CPR in February, while Fannie Mae speeds held steady at 9.4 CPR, according to Bear Stearns.

The analysts noted that 15-year Freddie discount coupons are paying on par with comparable Fannie discounts across most coupons and vintages, in contrast with the 30-year sector.

"The 15-year sector attracts borrowers who are willing to take on a higher monthly payment in order to build equity and pay off their debt," analysts Westhoff and Srinivasan said. "These borrowers are less likely to have nonstandard characteristics, decreasing the potential differences in borrower attributes between the agencies."