September MBS Prepayment Speeds
September factors are out and, overall, prepayments increased again but there is some nuance this month. First, while speeds increased overall; they did not increase nearly as much as last month. Also, unlike last month, lower coupons saw declines from the previous month; more than likely a sign of lower seasonal factors. Again, it is likely to see prepayment speeds increase again next month as mortgage rates have held and continued to fall. However, there will be competing interest as declining seasonal factors should offset increases in rate/term refinancings.
Notables and Thoughts
- For perspective, 30-year mortgage rates are still 18 bps above their all-time low of 3.31 most recently reached in November 2012. Meanwhile, 15-year mortgage rates are still 44 bps above their all-time low of 2.56 reached in May 2013.
- Other big news last week was the Treasury’s release of their Housing Reform Plan on Thursday. It’s a relatively-short 45-page read which I can best liken to “having a meeting about a meeting”. We are working on a Strategic Insight for release later this week.
- The fastest 15-Year UMBS cohort for the month was 2018 production 15-Year 3.5s at a 24.2 CPR.
- The fastest 20-Year UMBS cohort for the month was 2018 production 20-Year 4.0s at a 26.0 CPR.
- The fastest 30-Year UMBS cohort for the month was 2018 production 30-Year 4.0s at a 34.5 CPR.
- Given this continued and sustained decline in rates, it is worth looking at your projected yields, that is, the expected yield moving forward given current prepayment expectations as they have likely changed since your initial purchase.
- We can help you with this in a variety of ways, but one you may already be familiar with is to simply request a Performance Profile.
Based on the Freddie Mac Primary Mortgage Market Survey, 30- and 15- year fixed-rate mortgage rates are at their lowest levels since 2016. This year alone, 30- and 15-year mortgage rates are down 102 and 99 bps, respectively.
U.S. Department of the Treasury: Housing Reform Plan
“This plan addresses this last unfinished business of the financial crisis in a way that preserves what works in the current system, protects taxpayers, and reduces the influence of the Federal Government in the housing finance system.”
“Today, Fannie and Freddie look a lot like the mortgage market at large. Many of the mortgages they buy are made by nonbanks, which are less regulated than their bank counterparts.”
Kevin A. Smith, CFA
SVP, Director Investment Product Strategies
Analyst, Investment Product Strategies