Prepay Commentary |  |
January 2022 MBS Prepayment Speeds
January factors were released last evening (reflecting activity in December), and prepayment speeds are now available. For the third consecutive month, prepay speeds broadly declined. Mortgage rates increased again month-over-month, largely explaining the decline in prepayments. While most cohorts printed slower speeds in January than in December, there were of course some exceptions.
For 30-year UMBS, speeds for 2.0% coupons were relatively mixed compared to other parts of the stack. Moving up to higher coupons (4.0%+) and older vintages, especially those with low balances, prepayment speeds increased relative to December. In the 15-year space, faster prepayments were primarily limited to vintages originating in 2014 or earlier. The month-over-month trends are more mixed for GNMA issued paper, likely due to seasoning for both traditional and jumbo collateral, but still most cohorts printed slower speeds in January.
Moving Forward – 30-year Mortgage Rates Above 3.00% as Treasury Yields Begin the Year Higher
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 are hovering above 3.00% and have risen on average over the last three months. Freddie Mac’s most recent reading was 3.22%, up 11bps from 3.11% in December. The lowest ever recorded rate was 2.65% in January of this year. We dipped below 3% in April 2021 and largely remained there until November. The most recent reading on 15-year mortgage rates is 2.43%, a 4 basis points increase from December.
Fed’s Balance Sheet relative to Bloomberg Barclays US MBS Index
Existing home supply remains persistently low
Housing prices soar, will higher mortgage rates dent?
Prepay speeds broadly decline for third 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
5/1 ARM rate advantage high by recent historical and relative standards
What We’re Reading
WSJ: Mortgage Rates Hit Highest Levels Since Spring 2020
“U.S. mortgage rates this week rose to their highest levels since May 2020, driving up the costs associated with home buying at a time when home-sales prices are already near record highs.”
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