October Prepayment Speeds
November 7, 2017
MBS prepayments increased for October as expected, reversing most of the prior month’s decreases. With the exception of GNMA I MBS, October’s prepayments essentially mirror the increases observed in August: thirty-year FNMA, FGLMC, and GNMA II MBS increased 8%, while GNMA Is increased 3%. Fifteen-year MBS increased 5% for FNMA MBS, 4% for FGLMC MBS, 6%for GNMA II MBS, and 2% for GNMA I MBS. The two main drivers behind the monthly increases were day count and slightly lower mortgage rates for the applicable rate lock-in period. October had one more day than September, which accounts for a 5% increase, while thirty-year mortgage rates decreased around 10bp from the prior locking period that drove September prepayment speeds.
Fifteen-year and thirty-year mortgage rates continued to fall through the relevant refi window period, which did inspire some refinancing activity. The MBA Refi Index hit a yearly high September 8th at 1636.80. However, the high did not last, and already the Index has fallen back down below its year-to-date average of 1360.70. Last month’s uptick in mortgage rates should dampen speeds, and no pronounced trend in any direction seems likely based on the current interest rate environment and a housing market that only slowly and bumpily improves.
Both fifteen- and thirty-year mortgage rates have rebounded from their September lows of 2.91% and 3.67%, respectively, moving back towards levels last observed in July. In addition, November has the same number of application days as October. Therefore, prepayments should slow slightly for the month of November, reversing the increases of this month. November will mark the sixth month in a row of flip-flopping MBS prepayments, without much change in the long-term trends.
Director of Investment Product Strategies