Prepayment Rate Slips Despite Rate Dip.

Prepayment rates on 30-year fixed-rate mortgages in agency mortgage-backed securities declined by 11% across the board in September, according to Bear Stearns & Co.

Speeds on 2006 originations remained "relatively unchanged," while more-seasoned cohorts recorded a 10% to 15% decline, said Bear Stearns senior managing directors Dale Westhoff and V.S. Srinivasan.

The analysts said a three-day decline in business days from August's calendar more than offset a 20-basis-point rally in rates.

Aggregate prepayments on 30-year Fannie Mae collateral fell from a constant prepayment rate of 11.5 CPR in August to 10.4 CPR in September, compared with a decline from 10.5 CPR to 9.1 CPR for Freddie Mac collateral, the analysts reported.

Premium coupons recorded a "very modest" response to the rally in mortgage rates, as speeds on Fannie Mae vintage 2006 6.5s fell from 13.2 CPR in August to 12.8 CPR in September. "This report confirms the view that when the majority of the mortgage market is a discount, even premium cohorts are not very sensitive to changes in rates," the Bear Stearns analysts said.

Meanwhile, 30-year Ginnie Mae speeds declined by 13% and overall Ginnie speeds fell from 15.9 CPR in August to 13.8 CPR. The speeds of 2005 and 2006 vintages ranged from flat to slightly higher, while those of 2003 and earlier recorded slowdowns of 15% to 20%, the analysts reported. "Consequently, the 2005 vintage which until recently was paying slower than conventionals is now starting to pay faster," they said.

The Bear Stearns analysts highlighted the behavior of discount prepayment rates, which they said had converged for 2003 and 2004 vintages but continued to be slower for the 2005 vintage.