Prepay Commentary

December 2020 MBS Prepayment Speeds

December factors were released Friday evening (reflecting activity in November), and prepayment speeds are now available. For the first time in many months, I can report that prepay speeds broadly declined. They do remain elevated though and this respite is potentially short lived. The decline is likely due to fewer business days and a dash of seasonality.

Looking forward, it is likely prepay speeds remain elevated. Seasonal factors in December could keep prepays muted (relatively speaking) next month. That being said, mortgage rates have continued to fall even as Treasurys are higher as the Primary/Secondary spread continues to move lower. For example, mortgage rates for the relevant January and February of 2021 refinance window are respectively 7 and 16 bps lower than they were for this month’s window. As always, time will tell. I appreciate everyone’s readership this year and if there is anything I can do for you between now and the end of the year, please don’t hesitate to reach out.

Existing Home Inventory Remains Weak – Meanwhile, Ownership Remains Elevated

Speeds Remain Elevated – Broadly Lower

Prepay Friction – 30-Year 3.0s of 2019

Prepay Friction – 15-Year 3.0s of 2019

GNMA – Non-Jumbo to Jumbo Comparison

Primary/Secondary Spread – Decline Continues

Mortgage Rates – New All Time Lows on 15- and 30-Year Mortgage Rates

What We’re Reading

WSJ: Pausing Loan Payments During Coronavirus Is Producing Uneven Results

“The federal government helped millions of Americans through the early months of the pandemic by allowing them to defer payments, with little negative effect, on mortgages and student loans, two markets in which it holds huge sway. But the government’s reach doesn’t extend to credit-card lending, auto loans or personal loans, and borrowers with those forms of debt ended up with much less relief.”

UMBS 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

The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
Copyright © 2022
This is a publication of Vining-Sparks IBG, LLC
775 Ridge Lake Blvd., Memphis, TN 38120