Feb. 6 (Bloomberg) -- Prepayments on mortgages backing Fannie Mae, Freddie Mac and Ginnie Mae securities jumped last month as tumbling home-loan rates spurred refinancing. The speeds were slower than some analysts expected.

The one-month constant prepayment rate for 30-year, fixed- rate securities rose 107 percent to 17 for Fannie Mae bonds, 108 percent to 18 for Freddie Mac securities and 45 percent to 23 for Ginnie Mae I debt, according to an FTN Financial Capital Markets report today. The report is based on data released yesterday.

Constant prepayment rates represent the share of underlying mortgages that would be paid off in a year at the current pace.

The pace of borrowers seeking to refinance rose to the highest since 2003 in December and January as the Federal Reserve’s buying of so-called agency mortgage securities drove loan rates to record lows. Details of the monthly prepayment data, such as differences between speeds for bonds with different coupons and from different years, showed many homeowners unable to qualify, FTN Financial strategist Walt Schmidt wrote.

“We see some evidence of the highest-quality borrowers taking advantage of lower rates,” Schmidt, who is based in Chicago, wrote. “But there is also strong evidence that lower credit-quality borrowers are still on the outside looking in.”

Credit Suisse Group analysts wrote in a report today that the prepayments were lower than they expected. For loans with higher rates, in securities with 6.5 coupons, they “were significantly lower than even our low forecasts, underscoring the credit challenges faced by borrowers backing these pools.”

Downturn in Rates

The average rate on a typical 30-year fixed mortgage rose to 5.25 percent in the week ended yesterday, according to Freddie Mac. Rates are down from 6.46 percent in the last week of October, and up from 4.96 percent three weeks ago, a record low, amid rising yields on benchmark U.S. Treasuries.

“Street models predicted vastly higher speeds than came out,” said Scott Simon, the head of mortgage-bond investing at Newport Beach, California-based Pacific Investment Management Co. “We believed the Street was way too fast” because many borrowers have too low credit scores or home equity to qualify and lenders are struggling to deal with soaring applications.

Evidence of some borrowers being unable to take advantage of lower rates was seen in the 21 CPR for 6 percent 30-year Fannie Mae securities being “only slightly” faster than the 20 CPR for its 5.5 percent securities and “much faster” than the 13 CPR on its 6.5 percent bonds, Schmidt said.

Refinancing Incentive

Borrowers’ current loan rates usually are higher for higher-coupon securities, meaning they generally have more of an incentive to refinance when rates decline. Credit Suisse’s Chandrajit Bhattacharya and Mahesh Swaminathan wrote that they expected the CPR on Fannie Mae’s 6.5 percent securities from 2006 to be 24, compared with the 13 reported.

Mortgage-bond holders who paid more than face value for the debt may incur losses if refinancing means the securities are repaid faster than expected, cutting the value of the premium coupons on the bonds. More than 95 percent of Fannie Mae or Freddie Mac-guaranteed fixed-rate mortgage securities are trading above face value, according to Bloomberg data.

Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac, the two largest U.S. mortgage-finance companies, are government-chartered enterprises taken over by the U.S. in September. Federal agency Ginnie Mae guarantees bonds backed by government-insured loans; Ginnie prepayment speeds also reflect so-called buyouts of delinquent loans by mortgage servicers.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net

Last Updated: February 6, 2009 15:29 EST