Prepayment Speeds Fall, But Is Dip Temporary?

Overall prepayment rates for mortgage-backed securities declined 6% in April from a constant prepayment rate of 16.8 CPR to 15.8 CPR, according to Credit Suisse.

Writing in the "April 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 fell by 15% to 20%, while those of vintage 2007 6.5s (backed by "weak borrowers") remained unchanged.

Meanwhile, the speeds of 15-year mortgage pools remained higher than those of their 30-year counterparts.

"The speed differences persisted this month as speed declines on 2007 and 2006 vintage 15-year pools were smaller than their 30-year counterparts, due to pristine credit on the 15-year borrowers," the analysts said.

The Credit Suisse analysts reported that the estimated net issuance of fixed-rate MBS jumped from $38 billion in March to $48.5 billion in April, an increase of 28%.

The estimated net issuance of 30-year Fannie Mae and Freddie Mac MBS rose from $28 billion to $34 billion, while estimated issuance of 30-year Ginnie Mae securities climbed from $8.3 billion to $11.7 billion, they said.

The analysts projected that prepayments would decline 10%-15% for premium coupons and by about 5% for discounts in May due to the 20-basis-point rise in rates during ...