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
“The mortgage market’s response to the pandemic is the latest in a series of seemingly opposing indicators of Americans’ financial health.”
Kevin A. Smith, CFA
SVP, Director Investment Product Strategies
Analyst, Investment Product Strategies