December Data Shows Little Change in MBS Prepayment Activity.(Mortgage Backed Securities )

Prepayment rates of Fannie Mae and Freddie Mac mortgage-backed securities were mixed in the December reporting period, after slowing an average of 20% across the board in November.

Analysts Dale Westhoff and Bruce Kramer of the Bear Stearns Prepayment Commentary said changes in December were generally small on a percentage basis, and that nearly all changes in 30-year coupons of 6.5% and higher were under 10%.

Among 30-year 6.5s, all vintages paid at a constant prepayment rate of around 40 CPR, while 7.0s paid in the mid-40 CPR range, they said.

The divergence of new and seasoned vintages increased among Fannie Mae 7.5s and 8.0s, where new issues paid in the mid-50 CPR range and more seasoned issues paid in the 40s.

"The most interesting results were in the cusp coupons [5.0% and 5.5%], where several trends in the current housing market converged to bring the only notable surprises in the December report," the analysts said. "The [Fannie Mae] 5.5%/2003 cohort, which is by far the largest single piece of the coupon stack at $268 billion outstanding, rose from 8.8 CPR in November to 10.6 CPR in December."

The analysts said conventional speeds overall "remain slightly higher" than expected for several reasons, including record levels of housing turnover, high levels of refinanced loans in pools and hybrid adjustable-rate mortgages.

They speculated that the housing turnover levels "may have largely neutralized the November-to-December seasonal factor, which would normally push discount speeds down approximately 8%."