April Prepayment Speeds
May 5, 2017
MBS prepayment speeds slowed, reversing direction from the previous month’s increase that was caused by a combination of technical and seasonal factors. The April slowdown was the seventh decline in prepayment speeds in the last eight months. With the exception of a couple of very low and high coupons, speeds were lower all across the coupon stack. However, in aggregate, the slowdown for FNMA, FHLMC, and GNMA was only in the 1 CPR range. Market expectations were in line with these estimates, resulting in no surprises for investors and also for the markets.
Mortgage rates averaged 3.90% for the month of April, after reaching a year-to-date low of 3.81% on the 19th, according to Bankrate.com. Thirty-year mortgage rates and the ten-year US Treasury have followed similar paths since the Election: they recorded year-to-date highs of 4.19% and 2.63% on March 14th and 13th, respectively, and year-to-date lows of 3.81% and 2.17% on April 19th and 18th, respectively. The MBA Refi Index has remained rangebound since the beginning of the year, with a high of 1413.30 and low of 1182.30. Refinancing activity has been stagnant the last several months, and the MBA Index shows no signs of a pickup in refinance applications as burnout of existing applicants has prevailed. The number of collection days will be three greater in May, likely leading to a small increase in prepayment rates from April. While prepays should increase MoM, such an increase does not indicate a significant change in refinancing trends or revival in the housing market as technicals are very still very weak and activity shows few signs of rebounding from its current levels.
Director of Investment Product Strategies