Prepayment Rates Slow as Rates Rise.

Prepayment rates on 30-year fixed-rate mortgages in agency mortgage-backed securities fell 14% in July, according to Bear Stearns & Co. The decline reflected a two-day reduction in the business calendar and a 6-basis-point sell-off in mortgage rates, said Bear Stearns senior managing directors Dale Westhoff and V.S. Srinivasan.

Fannie Mae 30-year collateral recorded a constant prepayment rate of 10.7 CPR overall for the month, down 1.7 CPR from that of June, the analysts reported. "The decline in speeds was uniformly distributed across the coupon stack, with almost every coupon showing a 14% to 15% decline," they said.

The speeds of 30-year Freddie Mac collateral declined a little less than those of corresponding Fannie Mae loans, but remained "marginally slower" in most MBS coupons and vintages, the analysts said.

Overall speeds on Ginnie Mae collateral fell from 16.2 CPR in June to 14.4 CPR in May, an 11% decline.

"The Ginnie-Conventional prepayment gap now has an interesting pattern," said Mr. Westhoff and Mr. Srinivasan, noting that Ginnie Maes are paying "significantly faster" than conventionals on most cohorts originated before 2005 but "slightly slower" than conventionals on recent 2006 vintages. Meanwhile, the 2005 vintage has gone from paying slower to paying faster.

"The slower speeds on the 2005/2006 vintage can mostly be attributed to the change in the refund policy for upfront [mortgage insurance] payments," the analysts said. "The recent pickup in speeds on the 2005 vintage (relative to conventionals) is primarily because FHA has relaxed the constraints on cash-out refinancing for loans with more than 12 months of seasoning."

Regarding 15-year Fannie Mae and Freddie Mac collateral, speeds declined by 13%, comparable to the decline in 30-year speeds. Among agency hybrids, prepayments fell by 12%.