Speed Watch: August MBS Prepayment Rates Surge to Hit Record Pace.(Brief Article)

Prepayment rates for agency mortgage-backed securities surged across the board again in August as the huge cohort of 2001 vintage 6.5% coupons broke speed records, according to the Bear Stearns Prepayment Commentary.

Speeds of new Fannie Mae 6.5s accelerated 57%, while speeds of their seasoned counterparts registered a 41% increase, said analysts Dale Westhoff and Bruce Kramer.

"The 6.5% coupon of 2001 shattered all speed records for its level of refinancing incentive," the analysts said. ". (It) is the massive bellwether cohort we have been talking about for over a year. It embodies all three of the prepayment dynamics that are defining this prepayment event."

Those dynamics, they said, are high average loan size (now $147,000 for Fannie Mae and $144,000 for Freddie Mac); the effect of hybrid adjustable-rate mortgages, which expand refinancing incentives; and the lowest mortgage rates in 40 years.

Among the 2001 vintage 6.5s, Freddie Macs recorded the fastest constant prepayment rate of 38.7 CPR, according to Bear Stearns. Fannie Maes prepaid at a 37.9 CPR, while Ginnie Maes paid at a slower rate of 31.5 CPR.

Meanwhile, speeds of new and seasoned Fannie Mae 7.0s rose about 10 CPR, nearly 30%. But speed-ups "tailed off sharply" above that level due to burnout, the analysts said, with new Fannie Mae 7.5s, for example, recording a 14% acceleration.

In other prepayment-related news, the UBS Warburg Mortgage Strategist reported recently that jumbo-A mortgages are more sensitive to refinancing incentives than alternative-A mortgages.