Speed Watch: Reports Show Deceleration of Mortgage Prepayment Speeds in July.(Brief Article)(Statistical Data Included)

Now that Fannie Mae and Freddie Mac are both on a calendar-month reporting cycle, prepayment rates for agency mortgage-backed securities are converging.

According to the Bear Stearns Prepayment Commentary, speeds for Fannie Mae and Ginnie Mae MBS slowed by about 5% in July, while Freddie Mac speeds fell considerably more than that because they were artificially inflated in the previous report.

That's because of the 45-day accounting cycle that was used to bring Freddie Mac's cycle into alignment with Fannie Mae's.

For most cohorts, the speeds of Fannie Mae and Freddie Mac MBS were within 1 CPR of each other, and convergence also occurred in the Ginnie Mae sector, said analysts Dale Westhoff and Bruce Kramer.

The analysts said the overall numbers fell within the expected range, but there were exceptions.

"If there were surprises in this report, they were in the 2000 vintage 8.0% and 8.5% coupons where speeds remained stubbornly fast, at 52 and 55 CPR, respectively," they said. "This marks the sixth consecutive month that the 8.0% coupon has paid above 50 CPR."

Messrs. Westhoff and Kramer said the report reflects an average mortgage rate 10-15 basis points higher than the current rate.