Mortgage Prepayments Gained Faster Than Some Analysts Forecast Last Month

Mortgage refinancing and other early repayments of Fannie Mae and Freddie Mac mortgages rose faster than some analysts forecast, monthly bond data show.

The so-called constant prepayment rate, or CPR, for 30- year, fixed-rate securities guaranteed by Fannie Mae rose to 27 last month from 25.6, JPMorgan Chase & Co. analysts led by Brian Ye wrote in a report. The measure represents the share of debt that would be retired in a year at the current repayment pace.

Prepayment speeds affect how long it takes for mortgage- bond investors to get their principal back, and can reduce returns when either faster or slower than expected.

“This report continues a theme of gradually rising prepayment speeds driven by a slow and steady build out of originator capacity,” the New York-based analysts said in a note based on data released yesterday by Washington-based Fannie Mae.

Home refinancing applications dropped last week to the lowest since June as mortgage rates climbed from record lows, according to the Washington-based Mortgage Bankers Association. A refinancing boom in 2003 spurred CPRs to a record 60. This year’s rate is being checked in part by borrowers unable to refinance because a decline in home prices has left them without the home equity required to qualify for new loans.

Projected Speeds

Last month’s prepayments among securities backed by mortgages with the lowest rates were on the “faster side of expectations,” BNP Paribas analyst Anish Lohokare said in a note to clients. Bank of America Corp. analysts led by Chris Flanagan wrote that they had been “projecting speeds to remain unchanged month-over-month” overall, and that “bigger pickups were realized” among 2009 and 2010 loans backing 4 percent and 4.5 percent bonds.

The CPR for Fannie Mae’s 30-year, 4 percent securities rose to 11.2, from 8.8, according to data compiled by Bloomberg.

The average rate on a typical 30-year mortgage fell to a record low 4.17 percent in the week ended Nov. 11, before climbing for three weeks to 4.46, according to McLean, Virginia- based Freddie Mac. Loans usually close a month or two after applications.

Mortgage-bond prepayments are driven by refinancing, home sales and purchases of delinquent debt out of the securities by Fannie Mae and Freddie Mac, the government-supported mortgage- finance companies.

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

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.

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