Rates May Be Rising, But Prepay Speeds Have Yet to Slow Down.

April brought another jump in the prepayment rates for Fannie Mae mortgage-backed securities, especially among 2003 vintage 5.0% and 5.5% coupons.

The constant prepayment rates of Fannie Mae 5.0s and 5.5s increased by over 50%, from 10.6 CPR and 24.4 CPR, respectively, in March to 16.0 CPR and 35.4 CPR in April, analysts Dale Westhoff and Bruce Kramer reported in the Bear Stearns Prepayment Commentary.

Speed-ups among higher coupons were "much more muted," they said, with 6.0s and 6.5s increasing by 15% and 5%, respectively.

The analysts attributed the "amplified response" in lower coupons to "the heavy population of large loan balances ($155K-$175K), high FICO scores (718-725), and prior refinancers (approximately 75% of the borrowers)."

Speeds of 2003 and 2004 vintage Freddie Mac MBS were similar to or slightly below those of comparable Fannie Maes, which the Bear Stearns analysts said may stem from Freddie Mac's efforts to return its MBS speeds to market averages.

For example, the speed of 2003 vintage Freddie Mac 5.5s stood at 34.6 CPR in April, while comparable Fannie Mae coupons registered a 35.3 CPR. The speed of 2004 vintage Freddie Mac 6.0s was 22.9 CPR, compared with 23.8 CPR for comparable Fannie Mae securities.

"With minimal spillover effects expected from an origination pipeline with excess capacity, speeds across the entire coupon stack should reverse course in May as the effects of the 80-plus basis point sell-off in mortgage rates since March begins to hit the numbers in May, June and July," Messrs. Westhoff and Kramer said.