Speed Watch: Surge in July Prepayment Activity Suggests Start of New Refi Boom.(refinancing)(Brief Article)(Statistical Data Included)

Prepayment rates for agency mortgage-backed securities surged across the board in July in what the Bear Stearns Prepayment Commentary says is just the first stage of a new refinancing wave.

Citing the time lag between mortgage rate movements and reported prepayments, analysts Dale Westhoff and Bruce Kramer said the July report still reflected a 30-year fixed mortgage rate of 6.65%-6.75% and a Mortgage Bankers Association of America Refinance Index below 2000.

"With today's mortgage rate at approximately 6.35% and the refinancing index now at 5097 (for the week ended Aug. 2), prepayments will obviously head much higher than current levels in all coupons in coming months," they said.

The analysts said the "real news" is not in the refi index, but in the fact that the index for conventional adjustable- rate mortgages, which averaged about 2500 during last year's refi wave, now stands at 6425.

"Clearly, refinancing preferences have changed, and the hybrid ARM is becoming the refi product of choice for many borrowers," the Bear Stearns analysts said.

In other prepayment-related news, Applied Financial Technology, San Francisco, is promising the fall release of a new score that will enable mortgage lenders to include prepayment risk in their pricing.

The Espiel Score for Prepayments "provides a simple method of comparing the underlying prepayment risk of externally similar loans, whether it is for valuation, customer retention or hedging purposes," the software company says.