FRM Update

December 11, 2017

Treasury yields moved a couple of basis points higher across the curve last week, and mortgage yield spreads were tighter versus Treasuries and remain historically tight. Mortgage rates fell and mortgage applications rose 4.7% on the back of a 9.0% jump in refinancing activity. MBS prepayment speeds in November fell as expected, with both FNMA and FHLMC 30yr MBS speeds decreasing 10% in fractional terms. Next month’s prepayments are expected to decrease from one-day lower day count and higher mortgage rates. For additional prepayment commentary and charts, please see our November Prepayment Commentary.




CMO spreads tightened in various types of structures last week, while activity in CMOs slowed compared to recent levels. Investor focus was primarily in shorter PAC structures offering extension protection. Full coupon front sequential structures off of 30yr 3.5% collateral (“3.5 squared”) remained popular with financial institutions with wider spreads and was in better supply than many shorter structures. Odd lot cleanup activity has also increased as investors approach year-end.



Mortgage Rates and Refinance Activity





November Prepayment Speeds

November completely erased the increases observed last month, and then some. Both FNMA and FHLMC thirty-year MBS speeds decreased 10% in fractional terms, while fifteen-year collateral decreased 9% and 7%, respectively. GNMA slowed less than FNMA and FHLMC. Mortgage rates increased slightly for the preceding couple of months, which helped to suppress refinancing activity. Next month’s prepayments are expected to decrease. December has one less business day than November, and mortgage rates continue to increase, especially fifteen-year rates. For additional prepayment commentary and charts, please see our November Prepayment Commentary.


Dan Stimpson, CPA

Senior Vice President

Vining Sparks

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