Prepay Commentary

June 2020 MBS Prepayment Speeds

In our last publication, I said “I would be surprised, in next month’s report, if prepayments are not slower.” Well color me surprised. June factors were released last evening (reflecting activity in May), and prepayment speeds are now available. I would characterize the CPR prints, at a high level, as relatively flat to slightly increased. While the results are not what most expected, there are some exceptions if you dig below the headline numbers. Furthermore, the data supports these prints, were it not for COVID-19, as conditions were nearly as favorable month-over-month. As it turns out, at least initially, COVID-19 may not have as big of an effect on prepayments as many initially expected. As always, time will tell. In terms of prepayments for next month, I now think it is likely we see CPRs maintain or speed up as mortgage rates are nearly 20bps lower (3.28 versus 3.45) for the appropriate refi window.

Earlier this week, (6/2 and 6/4) we hosted a Mortgage Market Update & Opportunities webinar. I would like to thank those readers for their attendance and for those who would like to watch it on their own time or have a copy of the handouts, please email me and I will gladly provide them.

Food for Thought – Not Everything Prepaid Faster

GNMA Jumbos bucked the general trend this month of flat to faster prepayments over the past month. True, not all of the declines are meaningful (e.g. 42.7 to 41.3 on 2019 vintage Jumbo 3’s) but in aggregate this could be the start of a trend and we will continue to monitor it over the next few months.

Quick Forbearance Update

Starting this month, forbearance data is now reported on a pool level basis for Conventional pools. We have included the data in our main tables and in the detailed reports linked at the bottom of this publication. A few points to keep in mind, forbearance data will not completely tie together with delinquency data for a couple reasons. First, there is a timing difference in how the data is collected. Second, it is possible for a borrower to opt into a forbearance plan but to keep making full or partial payments. Lastly, forbearance and delinquency are overlapping data, e.g. if a borrower is in forbearance and has missed two consecutive payments, they will also show in the 60-day delinquency bucket.

Notables – Excludes vintages of marginal size

Mortgage Rates – Freddie Mac Primary Mortgage Market Survey

What We’re Reading

Vining Sparks: Agency MBS Forbearance

Agency mortgage forbearance is certainly not a new topic, but it is an ever-evolving one. I have written about forbearance in other publications as the situation has evolved and thought it would be helpful to condense these into a single publication.”

Vining Sparks: Mortgage Rates and Prepayment Speeds

It is anyone’s guess what will happen with mortgage prepayments in the future. Opinions and models can vary widely and it’s easy to understand why when we stop to consider the current landscape.”

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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