Speed Watch: Rate Rise in March Puts a Damper on April Prepayment Activity.(Brief Article)(Statistical Data Included)

Prepayment rates for most agency mortgage-backed securities slowed in the April reporting period, reflecting the rise in mortgage interest rates that occurred in March.

The largest decline came in vintage 2000 Fannie Mae 7.0s, which fell from a constant prepayment rate of 47.5 CPR in March to 38.1 CPR, according to the Bear Stearns Prepayment Commentary.

But even with the slowdown, nearly two-thirds of the 2000 vintage conventional MBS were paying at 50 CPR or higher, said analysts Dale Westhoff and Bruce Kramer.

Among Ginnie Mae securities, speeds of 6.0% and 6.5% coupons increased "on seasonal factors" by an average of 12% among seasoned issues and 33% among new issues, they said.

The outlook is for another round of speed declines in the next prepayment report, which should reflect most of the 40-basis-point rise in mortgage interest rates in March, the analysts said.

"Thereafter, we expect speeds in most cohorts to reverse course and rise going into the June reporting period ...," Messrs. Westhoff and Kramer said. "However, absent a move to lower rates, the current level of the mortgage rate does not indicate a major move to faster speeds."

As reported here last month, a surge in the speeds of 1991 and 1992 Fannie Mae 8.0%-9.0% coupons in the March report was attributed to the exercise of provisions that permitted Fannie Mae to call MBS pools of vintages 1992 and older when the pool factor fell below 10%.