Prepay Commentary

July MBS Prepayment Speeds

July factors are out and, technically speaking, conventional prepayment speeds declined. However, the magnitudes of these decreases were very small in nature and considering the already-elevated levels, these declines provided premium investors with little relief. GNMA speeds were fairly stable overall, but in general they had minor increases. Regarding speeds next month, right now I think it is reasonable to expect prepays to increase for a couple reasons. First, mortgage rates have declined further since we last wrote. Second, there are more business days in which borrowers can refinance.

Notables and Thoughts

Based on the Freddie Mac Primary Mortgage Market Survey, 30- and 15-year fixed-rate mortgage rates are at their lowest levels since late 2016. From their 2018 peaks, 30- and 15-year mortgage rates are down 119 and 118bps, respectively.

Also interesting, according to Google Trends, interest in “Mortgage Rates” has hit levels not seen since 2016 when rates dropped and then when they subsequently rebounded.

(CNBC) More than 8 million homeowners are leaving big money on the table by not refinancing

“While most borrowers tend to refinance after several years, about 1.5 million borrowers, or 35% of those who took out their loans just last year, could benefit greatly. No surprise that refinances, also referred to as prepayments, have jumped in the past few months as rates began their swoon.”

UMBS Speeds by Vintage Year

FGLMC 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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