Prepay Commentary

October MBS Prepayment Speeds

Almost without exception, MBS prepayments accelerated slightly in October. It seems counter intuitive given seasonal, financial, and economic headwinds including higher mortgage rates and lower purchase activity. We wrote last month referring to October, “The business calendar provides three extra days of potential mortgage closings for next month’s prepayment speeds. While this day count and other technical factors should offset much of the monthly impact of higher mortgage rates, the long term gradual trend toward slower prepayment speeds should remain intact for the coming months barring a meaningful turnaround in mortgage rate trends.” It appears three extra business days were perhaps enough to help increase speeds month-over month but the trend is still certainly downward. November and December both have 20 business days (2 fewer than October) so it will be interesting to see what happens if the mortgage landscape stays relatively the same.

For the year, based on the Freddie Mac Primary Mortgage Market Survey, 30yr Fixed Rate Mortgage rates are up 88bps from 3.95 to 4.83. 15yr Fixed Rate Mortgage rates are up 85bps from 3.38 to 4.23. For perspective, on a mortgage balance of $250,000 this increase represents additional monthly payments of $128 and $105, respectively.

FNMA Speeds by Vintage Year

FGLMC Speeds by Vintage Year

GNMA Speeds by Vintage Year

Non-Generic Collateral Comparison Tables

Kevin Smith, CFA

SVP, Director 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 © 2022
This is a publication of Vining-Sparks IBG, LLC
775 Ridge Lake Blvd., Memphis, TN 38120