Longer Month Means Higher Prepay Rates.

Prepayment rates on 30-year fixed-rate mortgages in Fannie Mae and Freddie Mac mortgage-backed securities increased by 21% in March, according to the Bear Stearns Prepayment Commentary.

Overall speeds on 30-year Fannie Mae collateral came in at a constant prepayment rate of 13.6 CPR for the month, up 2.4 CPR from February, Bear Stearns analyst Dale Westhoff reported. Speeds for comparable Freddie Mac mortgages averaged 11.8 CPR, up 2.1 CPR.

The biggest prepayment spikes in percentage terms were recorded in the lower coupons, as the speeds of 4.5% and 5.0% coupons rose by 30%-35%, compared with increases of about 25% for 5.5s and 15% for 6.0s and higher coupons, the analyst said.

"With 30-year mortgage rates relatively unchanged, the increase in prepayments can be attributed to a four-day increase in the business calendar and a seasonal uptick in housing turnover activity," Mr. Westhoff said.

The analyst said the one surprise in the prepayment report was "the sharp increase in speeds on the 2005 cohort," which he said is probably a response to the "significant levels of appreciation" that many homeowners have seen over the past year.

The speeds of 30-year Freddie Mac collateral continued to be slower than those of Fannie Mae mortgages across most coupons and vintages, the analyst observed, noting that Bear Stearns has long attributed these disparities to the fact that Fannie Mae pools have a higher percentage of loans with nonstandard borrower characteristics.

"These borrowers are more likely to tap the equity in their property via cash-out refinancing," which has "a large impact on speeds of discount to cuspy coupons," he said. "Not surprisingly, the difference between [Fannie Mae and Freddie Mac] is largest for the 5.5% and 6.0% coupons."