FRM Update

November 13, 2017



Treasury yields rose last week with unchanged to slightly higher mortgage rates and wider mortgage yield spreads versus Treasuries. Mortgage rates were mixed last week and have traded in a tight range over the last month and for much of this year. The MBA Refi Index (1291) has fallen eight of the last nine weeks to the lowest level since February. MBS prepayments increased in October as expected, reversing most of the prior month’s decreases. The two main drivers behind the monthly increases were day count and slightly lower mortgage rates for the applicable rate lock-in period. Prepayments are expected to slow slightly for the month of November. For additional prepayment commentary and charts, please see our October Prepayment Commentary.

MBS




CMOs

CMO spreads were unchanged to tighter last week. CMO investors were active in various types of CMO structures including front end sequential and PAC structures offering extension protection in conventional, jumbo, and relo collateral. Depositories continue to focus on stable structures with 4- to 6-year average lives. Full coupon front sequential structures off of 30yr 3.5% collateral (“3.5 squared”) remained popular with financial institutions with wider spreads and better supply than many shorter structures.

Mortgage Rates and Refinance Activity

 

 

October Prepayment Speeds

MBS prepayments increased in October as expected, reversing most of the prior month’s decreases. The two main drivers behind the monthly increases were day count and slightly lower mortgage rates for the applicable rate lock-in period. 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. 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. For additional prepayment commentary and charts, please see our October Prepayment Commentary.

 

 

 

 


Dan Stimpson, CPA

Senior Vice President

Vining Sparks

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