August MBS Prepayment Speeds
Overall MBS prepayments accelerated slightly last month. A favorable day count and seasonal factors such as housing turnover pushed prepayments forward into the headwind of slightly higher mortgage rates and their suppressive impact on refinance activity. The pervasive nature of the prepayment increases provides evidence the technical and seasonal factors caused much of the small increase in speeds, as the refinance vulnerable coupons increased in similar fashion to the out of the money and also the burned out coupons.
Mortgage rates moved by small amounts during the last several months. The thirty year conventional quote from the Bankrate.com survey never broke below 4.25% or above 4.5% since the middle of May. However, this rate spent much of the June and July period near the top of that range and the media effect probably amplified impacts of the slight elevation of mortgage rates as news of short term rate increases and discussions of their implications captured significant space in the press. Mortgage rates remained within a range consistent with recent months for the lock-in period pertinent to September prepayments, so a less favorable day count and lower housing turnover based on seasonality suggest slightly slower prepayment speeds for September than for last month.
Director of Investment Product Strategies