Prepay Commentary |  |
December 2021 MBS Prepayment Speeds
December factors were released last evening (reflecting activity in November), and prepayment speeds are now available. Like last month, prepay speeds broadly declined. Once again, mortgage rates increased month-over-month, largely explaining the decline in speeds. While most cohorts printed slower speeds in December than in November, there were of course some exceptions among higher coupons and older vintages.
For 30-year UMBS, 2.0s and 2.5s saw the biggest percentage declines in monthly speeds. In the 15-year space, 1.0s and 1.5s slowed meaningfully as well. Prepayments for G2SF 2.5s and G2JM 1.5s and 2.5s declined the most among GNMA issued paper. While Jumbo 2.5s and 3.0s declined month-over-month, prepayments for those coupons are still generally elevated (see “Jumbo Comparison” charts below for more detail).
Moving Forward – 30-Year Mortgage Rates Hovering above 3.00%
Looking ahead to next month, mortgage rates during the refi-window were higher than this period, which will likely keep lower coupon speeds depressed again. Mortgage rates remain historically low but have risen on average over the last two months. Freddie Mac’s most recent reading was 3.11%, up slightly from 3.09% in November. The lowest ever recorded rate was 2.65% in January of this year. We dipped below 3% in late April and largely remained there until November. The most recent reading on 15-year mortgage rates is 2.39%, a 4 basis points increase from November.
Housing prices soar, will higher mortgage rates dent?
Prepay speeds broadly decline for second month in a row
W2D means “worst-to-deliver” – these speeds do not include collateral such as loan balance, New York, 100% Investor, etc.
Prepay Friction – 30-Year 2.5s of 2020
Prepay Friction – 15-Year 2.5s of 2020
Prepay Friction – 15-Year 2.0s of 2020
Jumbo Comparison – 2.0s Remain Subdued, 2.5s and 3.0s slow but remain elevated
Primary/Secondary Spread – Leveled Off After 2020 Blowout and Subsequent Tightening
Mortgage Rates – Trending higher, still below peaks from earlier this year except ARMs
What We’re Reading
WSJ: High Inflation, Falling Unemployment Prompted Powell’s Fed Pivot
“Fed officials for months have stressed the risks of raising rates to cool the economy if supply-chain bottlenecks resolve themselves. But if stimulus and wealth effects are driving stronger demand, “that’s something that monetary policy is made to respond to” by raising interest rates, said Mr. Quarles.”
Kevin A. Smith, CFA
SVP, Director Investment Product Strategies
Vining Sparks
Travis Nauert, CFA
Analyst, Investment Product Strategies
Vining Sparks
Adam Hofer
Analyst, Investment Product Strategies
Vining Sparks