Prepay Commentary

January 2021 MBS Prepayment Speeds

January factors were released last evening (reflecting activity in December), and prepayment speeds are now available. After a brief (and slight) hiatus last month, prepayment speeds have broadly increased across the board.

Looking forward, it is likely prepay speeds remain elevated. Mortgage rates have continued to trend lower (setting new all-time lows on 1/7) even as Treasury yields are trending higher. The Primary/Secondary spread continues to compress. For example, mortgage rates for the relevant February and March of 2021 refinance window are respectively 10 and 15 bps lower than they were for this month’s window. As always, time will tell.

A Couple Notes of Interest

Existing Home Inventory Remains Weak – Meanwhile, Ownership Remains Elevated

Speeds Remain Elevated – Broadly Lower

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

Jumbo Comparison

Primary/Secondary Spread – Decline Continues

Mortgage Rates – 2021 Begins with New All Time Lows on 15- and 30-Year Mortgage Rates

What We’re Reading

Vining Sparks: MBS & Prepayment Update: Volatile 2020 Comes to an End

Last year was one for the records in the mortgage market. This presentation looks back over 2020 at what happened and how different prepay models performed over the year. Some did better than others. It is always important, but especially in this environment, that robust prepayment assumptions are used. We also make note that Bloomberg is releasing a model update and provide some background and comparisons.

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

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