Prepay Commentary

August MBS Prepayment Speeds

August factors are out and prepayments are up across the board. It should not come as a surprise though. As we wrote last month, the expectation was for speeds to increase this month as mortgage rates were lower during the applicable refi window; plus, add in a couple extra business days, and you have a recipe for faster prepayments. Next month will likely see prepayment speeds increase again. Since August 1st, just 6 days ago, 7-year and 10-year Treasury yields are down 23 and 26 bps, respectively. If rates remain at or near these levels, it speaks to higher prepayments in October since refinancings typically take thirty to forty-five days to close.

Notables and Thoughts

Based on the Freddie Mac Primary Mortgage Market Survey, 30- and 15-year fixed-rate mortgage rates are at their lowest levels since 2016. This year alone, 30- and 15-year mortgage rates are down 76 and 79 bps, respectively.

WSJ: Boom in Refinancing Boosts Mortgage Lending

“Lenders made $565 billion of mortgage loans in the second quarter, the most in more than two years. At that pace, originations could exceed $2 trillion for only the third year since the financial crisis, according to Inside Mortgage Finance.”

Vining Sparks: Strategic Insight: Mid-Year Review | Time to Flip the Script?

“Most depositories have positioned their balance sheets for rising rates. Naturally, this came with increased exposure to falling rates. Given that interest rate risk has become more bidirectional in nature and the market is signaling a Fed ease, the question to ask right now is, should we begin to hedge against falling rates?”

UMBS Speeds by Vintage Year

FGLMC Speeds by Vintage Year

GNMA Speeds by Vintage Year

Kevin A. Smith, CFA

SVP, Director Investment Product Strategies

Vining Sparks

Adam Hofer

Analyst, Investment Product Strategies

Vining Sparks

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