Prepayment Activity Is Starting to Heat Up Again.

Prepayment rates for 30-year mortgages in Fannie Mae and Freddie Mac mortgage-backed securities reversed course in October, rising 14%.

The reversal was attributable to three extra business days and a decline in mortgage rates, according to the Bear Stearns Prepayment Commentary.

The aggregate speed of 30-year Fannie Maes came in at a constant prepayment rate of 8.4 CPR, up from 7.4 CPR the previous month, while comparable Freddie Macs recorded an 8.1 CPR, up from 6.9 CPR in September.

However, the higher speeds should be viewed as a blip in an otherwise negative outlook for prepayments, said Bear Stearns analysts Steve Bergantino and Dale Westhoff. In November, a seasonal slowdown in turnover activity and a two-day decline in the business calendar should take back Octobers prepayment increase.

The analysts said the ramp-up in speeds was more pronounced on higher coupons and more recent vintages as prepayments on 2006 Fannie 6.5s shot up 28% compared with just an 8% rise in 2005 Fannie 5.0s.

Meanwhile, aggregate speeds for 30-year Ginnie Mae collateral were virtually unchanged in October, but remained higher than conventional speeds, the analysts said.

In September, overall speeds on 30-year mortgages in Fannie Mae and Freddie Mac MBS dropped 19%, resulting from a shorter business calendar, lower seasonal turnover activity, a deteriorating housing market and tighter underwriting standards, according to Bear Stearns.