Some High Coupon Loans Are Not Refinancing as Fast as Expected.

The speeds of most agency mortgage-backed securities increased in the September reporting period, but the acceleration wasn't as fast as expected for 7.5% coupons and above, according to the Bear Stearns Prepayment Commentary.

Speeds of conventional 6.0s and 6.5s rose 25%-35% across all vintages, while those of 7.0s and 7.5s increased 10%- 15%, said analysts Dale Westhoff and Bruce Kramer.

Among Ginnie Mae securities, the speed-up was "more muted," though speeds rose in every coupon up to 8.0%, they said.

"The mortgage rate that corresponded to today's numbers was approximately 6.30%, while the MBA Refinancing Index was averaging just over 5000 during this reporting period," the analysts said. "Today's mortgage rate is now under 6.0% and the MBA Refinancing Index is at an all-time high of 6671, suggesting that there will be substantial increases from these levels as we move into the fourth quarter."

The Bear Stearns analysts cited the prepayment behavior of the 2001 conventional 7.0% coupon, whose constant prepayment rate increased only 5 CPR to 52.1 CPR, as the "biggest surprise" in the report.

"This issue was clearly in the sweet spot of the refinancing wave for this period, but ended up increasing less than even the 1993 vintage, which was up a much larger 9 CPR to 48.0 CPR (consistent with our expectations)," they said. "The 2001 vintage will clearly have to play catch-up in the coming reports to reach our current forecast levels."

However, the analysts said it is not unusual for "substantial monthly timing differences" to occur as low-balance, high-coupon issues show a delayed response to refi incentives.