Prepay Commentary

October MBS Prepayment Speeds

October factors are out and, overall, prepayments increased again, but there are some nuances this month. Again, like last month, lower coupons saw declines from the previous month, a sign of lower seasonal factors. At risk of sounding like a broken record this year, it is likely to see prepayment speeds increase again next month. Even though mortgage rates have recently bounced up by ~15 bps, there are still plenty of in-the-money mortgages to refinance. However, once again there will be competing interest as declining seasonal factors should offset some of the increases in rate/term refinancings.

Also, of interest since our last publication, the Housing Reform Plan put forth by Treasury has certainly put the wheels in motion for GSE reform. I have included a link below to a Strategic Insight authored on the topic along with a recent Bloomberg article about an administrative step taken since release of the plan detailing how (and how much) Fannie and Freddie can grow their capital cushions.

Notables and Thoughts

Based on the Freddie Mac Primary Mortgage Market Survey, 30- and 15- year fixed-rate mortgage rates are right above their lows of the year by 14-16 bps. Still, this year alone, 30- and 15-year mortgage rates are down 90 and 87 bps, respectively. If current Treasury yields more or less hold (10-year currently at 1.54%), I would expect mortgage rates to decline moving forward.

Vining Sparks: Strategic Insight: Housing Finance Reform Plan

“The only thing certain about this plan is that it will change. Right now, given the low probability of legislative action, we think investors’ time is best spent focused on potential administrative changes.”

Bloomberg: Fannie, Freddie Permitted to Boost Capital Cushions by Billions

“Fannie will be permitted to retain earnings until its capital buffer hits $25 billion, while Freddie will be allowed to hold $20 billion, the Treasury Department and the Federal Housing Finance Agency announced Monday. Last year, Fannie reported net income of $16 billion and Freddie made $9.2 billion, signaling it could take more than a year for the companies to reach the administration’s new goal.”

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

The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
Copyright © 2021
This is a publication of Vining-Sparks IBG, L.P.
775 Ridge Lake Blvd., Memphis, TN 38120