Prepayments Fall Across the Board - But only for Sub 6% Loan Cohorts.

Prepayment rates for agency mortgage-backed securities fell across the board for coupons at or below the 6.0% level in the August reporting period while holding steady or rising somewhat among higher coupons.

Writing in the Bear Stearns Prepayment Commentary, analysts Dale Westhoff and Bruce Kramer said percentage declines in constant prepayment rates ranged from 25% to 35% for new cohorts of 5.0% and 5.5% coupons for both conventional MBS and Ginnie Maes.

While acknowledging a few surprises among superpremiums in the report, the analysts said "all signs point toward a sharp slowdown across all coupons and vintages in the September reporting period."

Although pipeline issues may keep speeds on some older cohorts "slightly elevated," the Bear Stearns analysts said they "expect the MBS universe to enter its new prepayment regime starting with next month's report."

Speeds of Freddie Mac MBS were once again consistently faster than those of comparable Fannie Maes, but the gap had narrowed and should close by the end of the year, the analysts predicted.

In another recent publication, Bear Stearns analysts forecast that most of the big drop-off in MBS speeds that should flow from the recent surge in interest rates is likely to occur in the next three months (by the November reporting period).

Writing in the September issue of Short-Term Prepayment Estimates, analysts Westhoff, Kramer and V. S. Srinivasan noted that some observers have argued for a longer period of declining speeds on the grounds that originators won't be able to clear their pipelines rapidly in the wake of record volumes.