March Brings Widespread Acceleration of Prepayment Speeds.

Prepayment rates for agency mortgage-backed securities surged across the board in March, led by increases of around 50% in the speed of the massive 5.5% 2003 coupons.

Writing in the Bear Stearns Prepayment Commentary, analysts Dale Westhoff and Bruce Kramer said the speed of the new Fannie Mae 5.5s jumped 48%, while the speeds of most Fannie Mae coupons jumped 25%-30%.

For example, 2001 vintage Fannie 5.5s rose from a constant prepayment rate of 27.4 CPR in February to 36.2 CPR in March, and 1999 vintage Fannie 6.0s rose from 35.2 CPR in February to 45.6 CPR.

The report reflects "two important realities in the current prepayment landscape," they said, namely "ample capacity in the mortgage pipeline" and the "significant drop" in mortgage rates after the March 5 employment report.

However, they went on to note the more recent backup in interest rates.

"The sell-off has pushed the mortgage rate back to where it was at the beginning of the year [5.90%], reducing MBS market refinancing exposure from a high of 70% in March to just 37% today," the analysts said. "Similarly, the average borrower refinancing incentive has dropped from a high of 80 basis points the week ending March 12 to just 30 basis points today."

Mr. Westhoff and Mr. Kramer said the interest-only market "may react negatively" to the numbers in the short term "as higher dollar prices and faster speeds once again take their toll on investors for whom the speeds in this report came as a surprise."