Speed Watch: Market Sees Prepayment Rates Spike Upward in October.(Brief Article)(Statistical Data Included)

Prepayment rates for agency mortgage-backed securities rose dramatically in October partly as an indirect result of the terrorist attacks of Sept. 11, according to the Bear Stearns Prepayment Commentary.

The average speed of Fannie Mae, Freddie Mac and Ginnie Mae MBS surged 52% in the October reporting period.

"We believe many of the refinancing transactions that were postponed in September rolled into the October report, pushing speeds even higher during the period," said Bear Stearns analysts Dale Westhoff and Bruce Kramer.

Speeds of new-issue Fannie Mae 7.0% coupons accelerated by a constant prepayment rate of 16 CPR to reach 37 CPR, and new-issue 7.5% coupons speeded up by 18 CPR to hit 59 CPR, they said.

"We note that this is the fastest new-vintage 7.0s have ever paid," the analysts said. "Seasoned issues also increased sharply, with most seasoned high coupons already paying faster than they did at their peak levels earlier in the year."

Ginnie Mae MBS speeds were similar to those of Fannie Mae and Freddie Mac when adjusted for the weighted average coupon.

But in vintages where Fannie Mae and Freddie Mac WACs were inflated, the differences between Ginnie Maes and conventionals were "sometimes dramatic," Messrs. Westhoff and Kramer said. They cited the 2000 vintage 7.0% Fannie Mae (with a gross WAC of 7.72%), which recorded a 51 CPR compared with a 35 CPR for the Ginnie Mae 7.0%.