Prepayments Slow after February Surge.

Overall prepayment rates for mortgage-backed securities fell 6.9% in March after surging 52% in February, suggesting that speeds "were front-loaded in February, most likely as originators tried to avoid the new delivery fees applicable from March," according to Credit Suisse.

Writing in the company's "March 2008 Fixed Rate Prepayment Commentary," Credit Suisse researchers Mahesh Swaminathan and Chandrajit Bhattacharya reported that the speeds of 30-year vintage 2006 and 2007 5.5s and 6.0s backed by "highly creditworthy borrowers" fell by constant prepayment rates of 5 CPR to 6 CPR.

This represented a reversal of the spike in February, they noted.

"In contrast, the prepayment profile on 6.5s and 7s backed by weak borrowers has remained stable over the past three months," they said.

"We believe the prepayment spike in February and the subsequent drop-off in March on 2007 and 2006 vintage 5.5s through 6s was due to a front loading of closings in February."

The Credit Suisse analysts reported that the estimated net issuance of fixed-rate MBS fell to $38.1 billion in February, a decline of 24% from $50 billion in January, while the net issuance of 30-year Fannie Mae and Freddie Mac MBS fell from $47.6 billion to $19.5 billion.

The prepayment report points to the fact that extension risk is currently the "prevalent risk," especially in the 30-year 5.0% and 5.5% coupons, they said.