Prepayment Rates Continued to Fall Late in 2007.

Prepayment rates for 30-year mortgage loans in Fannie Mae and Freddie Mac mortgage-backed securities declined in November by 6% and 8%, respectively, according to the Bear Stearns Prepayment Commentary.

The aggregate speed of 30-year Fannie Maes was a constant prepayment rate of 7.7 CPR, down from 8.4 CPR in October, and 7.6 CPR for comparable Freddie Macs, down from 8.1 CPR in October.

Meanwhile, however, prepayments on Fannie 2005 and 2006 7% coupons plummeted 47%.

Bear Stearns analysts Dale Westhoff and Steven Bergantino said Fannie Mae has attributed the previous prepayment variability in the 7.0s to the removal of delinquent loans from MBS pools, and that the procedure for removing such loans would be changed to lessen this effect.

"Presumably, this month's large decline is the result of [Fannie's] new toned-down buyout policy for delinquent premiums," the Bear Stearns analysts said. "Hopefully, December prepayments will confirm this hypothesis and eliminate the need for any further reporting on the misbehavior of these cohorts."

Prepayments on 15-year Fannie Mae and Freddie Mac collateral fell by 7% in November, with Fannie speeds declining from 8.9 CPR to 8.3 CPR and Freddie speeds decreasing from 8.8 CPR to 8.1 CPR.

"Pools backed by 15-year collateral continue to exhibit a better convexity profile than their 30-year counterparts (i.e., faster prepayments on discounts and slower prepayments on premiums)," the Bear Stearns analysts said.