Prepay Commentary

October 2020 MBS Prepayment Speeds

October factors were released yesterday evening (reflecting activity in September), and prepayment speeds are now available. It should surprise no one prepay speeds remained elevated. At a high level conventional speeds increased 2-4 CPR while GNMA was more nuanced with lower coupons seeing a 1-4 CPR increase while higher coupons were relatively unchanged.

Looking forward, it is likely prepay speeds remain elevated. Mortgage rates have continued to fall even as Treasurys are higher as the Primary/Secondary spread moves lower. Housing activity remains resilient as a combination of high demand, low supply, and low mortgage rates have buoyed this segment of the US economy (see charts below). If someone told me last year we would see a pandemic-induced recession and housing would remain strong…I’m not sure which statement I’d have thought was more bizarre, but here we are.

Existing Home Inventory Remains Weak – Meanwhile, Ownership Sharply Higher

Speeds Remain Elevated, Lower Coupons Continue to March Higher

Prepay Friction – 30-Year 3.0s of 2019

Prepay Friction – 15-Year 3.0s of 2019

GNMA – Non-Jumbo to Jumbo Comparison

Primary/Secondary Spread – Remains Elevated as Mortgage Rates Stay Low

Mortgage Rates – Near/At All Time Lows on 15- and 30-Year Mortgage Rates

What We’re Reading

WSJ: Mortgage Refinancings Boom, Even as Coronavirus Hits Economy

“The mortgage market’s response to the pandemic is the latest in a series of seemingly opposing indicators of Americans’ financial health.”

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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