Ides of March Portend Higher Prepay Speeds.

Some analysts were predicting a significant increase in prepayment rates in March for 30-year mortgages in Fannie Mae and Freddie Mac mortgage-backed securities.

In the Mortgage Strategist, UBS Investment Research analysts forecast that March speeds would climb about 30%. (The deadline for this column preceded the release of agency prepayment rates for March.)

"Discount speeds will mostly be boosted by an increase in day count (22 vs. 19) and seasonality," the UBS publication said. "Given the extra capacity and empty pipeline in the mortgage industry, we expect the lag between refinance response and recent rally to be short."

The analysts predicted that premium Fannie Mae speeds, especially vintage 2006 6.0% and 6.5% coupons, would experience an increase in constant prepayment rates of 3-5 CPR, to 13.5 and 22.0 CPR, respectively. Their projection for the average speed of Fannie Mae 7.0s was 19.0 CPR.

"At the moment, we have not seen any evidence that the liquidity squeeze in the subprime market is spreading into the prime market, although marginal alt-A borrowers could show less refinance response due to lack of [home price appreciation]," they declared.

Looking out another month, the UBS analysts were forecasting that April prepayments would fall 3%-5% from their levels in March.

"Two fewer business days should reduce discount speeds by 7% to 10%," they said. "On the other hand, the ongoing rally could continue to boost premium speeds by 5%."