May MBS Prepayment Speeds
June 7, 2018
An unsurprising pickup in prepayment speeds occurred during May. May prepayments get a seasonal push and the day count for this May was one day longer than April. Mortgage rates bounced around within a fairly narrow range from early February until the middle of April, and the increases in interest rates subsequent to that period occurred late enough that they had little impact on the refinance application volume for the period leading up to May loan closings. The fact of the matter is housing turnover and its seasonal pickup drove prepayments, with interest rates exerting only minor influence on the prepayment pickup. The increase in discount coupon prepayment speeds demonstrates this.
The bond market selloff in mid-April pushed 30yr mortgage rates up into what has become a new range, with 30yr rates bouncing around in an approximately 4.3% to 4.6% range after spending the prior two-and-a-half months generally between 4.25% and 4.35%. Seasonality and housing turnover should continue to support prepayment speeds for June, and with a favorable calendar prepayment speeds should remain in line with this month.
Director of Investment Product Strategies