Prepay Commentary

February 2022 MBS Prepayment Speeds

February factors were released last evening (reflecting activity in January), and prepayment speeds are now available. For the fourth consecutive month, prepay speeds broadly declined. Mortgage rates increased during the window, partly explaining the decline in speeds. The average 30-year mortgage rate has increased in four consecutive months.  Remembering that the theme of the data is declining speeds, there were of course some exceptions among higher-coupon, older-vintage cohorts that saw increases, most likely due to seasoning. Even then, this was mainly in the 10- and 20-year space. The overwhelming majority of 15- and 30-year cohorts saw broad declines in speeds.

This month, the general uniformity of changes in speeds seems remarkable across collateral types, whether it be W2D, low-loan balance, 100% investor property etc. With market expectations for future rate hikes, it will be interesting to see just how much of additional drop off there is in speeds given another leg up in Treasury yields.

Moving Forward – 30-year Mortgage Rates above 3.00% as Treasury Yields sustain early year gains and push higher

Looking ahead to next month, mortgage rates during the refi-window were once again higher than this period, which will likely keep lower coupon speeds depressed. Mortgage rates are sustaining levels above 3.00% and have risen on average over the last four months. Freddie Mac’s most recent reading was 3.55%, up 33bps from 3.22% in January. The lowest ever recorded rate was 2.65% in January 2021. We dipped below 3% in April 2021 and largely remained there until November. The most recent reading on 15-year mortgage rates is 2.77%.

Fed’s Balance Sheet relative to Bloomberg Barclays US MBS Index

Existing home supply hits new low

Housing prices soar, will higher mortgage rates dent?

Prepay speeds broadly decline for fourth 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 slower, 3.0s slower but GNs plateau

Primary/Secondary Spread – Leveled Off After 2020 Blowout and Subsequent Tightening

Mortgage Rates – Trending higher, ARMs lag

What We’re Reading

Bloomberg: Never Been a Worse Time to Buy a Home in a Poll of U.S. Households

“The lack of affordable houses, made even more acute by the Covid-19 crisis, is hitting the younger generations the hardest. An analysis from Zillow Group Inc. showed that home prices are rising the fastest in family-friendly suburbs, a trend that’s set to persist as a record number of millennials approach what’s traditionally been home-buying age for Americans.”

UMBS Speeds by Vintage Year

GNMA Speeds by Vintage Year

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

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