Refinancing Remains Vigorous Even in Holiday Season.

Prepayment rates rose 5%-7% in December for Fannie Mae mortgage-backed securities and were mixed for Freddie Mac MBS, contrary to some analysts' expectations.

Speeds of 30-year Fannie Mae 6.0%, 6.5% and 7.0% coupons in the 2001 vintage rose by constant prepayment rates of about 3 CPR, and most seasoned Fannie Mae vintages held steady or sped up modestly, said analysts Dale Westhoff and Bruce Kramer of the Bear Stearns Prepayment Commentary.

For Freddie Mac MBS, speeds were "much more muted," the analysts reported. They added, however, that they do not see any "systematic bias" developing between Fannie Mae and Freddie Mac prepayments. The pattern of Ginnie Mae MBS speeds tracked very closely with those of Fannie Mae's.

"The numbers reflect continued vigorous refinancing through the holiday period, with many loans that normally would have closed in November rolling into the December reporting period," the analysts said.

"In retrospect, retailers trying to figure out where consumers were in December probably should have checked the nearest mortgage bank."

The Bear Stearns analysts said they were surprised by the rise in Fannie Mae speeds, attributing it partly to the two additional business days in December (compared with November's total) and the rise and fall of interest rates in October and November.

"We had expected the zigzag rate path to smooth out the prepayment profile, especially since it was occurring during the holiday season when transactions are typically slower to close," the analysts said. "Apparently some of those transactions flowed directly through to the December report."