Prepay Commentary

November MBS Prepayment Speeds

November factors were released last evening (reflecting activity in October), and prepayment speeds are now available. Like last month, prepay speeds broadly declined. However, mortgage rates increased month-over-month, largely explaining the decline in speeds. While most coupons and vintages maintained or decreased from October, there were some exceptions. Higher coupon and older cohorts were mixed, with some vintages printing higher speeds than last month. In terms of prepay friction collateral, some 15-year 2.0 and 2.5 cohorts saw slight increases in speeds as well; even though, they remained much lower than generic collateral. 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.

Moving Forward – Mortgage rates breach 3%, still relatively low though

Mortgage rates remain historically low but breached 3% in Freddie Mac’s latest reading of 3.09%. We dipped below 3% in late April and have largely remained there, never getting more than a couple bps above 3%. The lowest ever recorded rate was 2.65% in January of this year. Regarding 15-year mortgage rates, the most recent reading is 2.35%, just 25 bps above the all-time low of 2.10% from early August.

Supply ticks down slightly, still near lowest levels in recent history

Prepay speeds broadly decline

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

What We’re Reading

WSJ: Fed Dials Back Bond Purchases, Plots End to Stimulus by June

“Fed officials agreed to wind down their $120-billion-a-month asset-purchase program by $15 billion each in November and December, a pace that could phase out the purchases entirely by next June.”

UMBS Speeds by Vintage Year

GNMA Speeds by Vintage Year

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

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