Fannie, Freddie Prepay Speeds Diverge.

Prepayment rates for 30-year Fannie Mae mortgage-backed securities rose slightly in December, while 30-year Freddie Mac MBS speeds recorded somewhat larger increases.

For Fannie 30-year MBS issues, the aggregate speed increased by a constant prepayment rate of 0.1 CPR in December, compared with 0.7 CPR for Freddie Mac issues, according to Bear Stearns.

"These small changes in prepayments reflect the stable mortgage rate environment over the last few months," Bear Stearns analyst Dale Westhoff said.

Speed differentials between Fannies and Freddies decreased in the December report. Freddie Mac MBS speeds were still slower than Fannie Mae's on most new cohorts, but "speeds on seasoned cohorts converged," Mr. Westhoff said.

Regarding discount coupons, the analyst said they continue to record historically high speeds and that "one of the few surprises" in the December prepayment report is that they rose from their November levels.

"In a stable interest rate environment we would expect a 15% decline in housing turnover activity from October to December, but given the strong housing market we seem to have countered that trend," Mr. Westhoff said.

Meanwhile, Ginnie Mae speeds held steady or fell modestly in December. Ginnie Mae "continues to pay faster than conventionals across the entire coupon spectrum, with the biggest gap observed in the lowest coupons," the Bear Stearns analyst reported.