Mortgage Bonds in Eye of Storm as Refis Decline: Credit Markets

Investors in U.S. government-backed mortgage bonds who benefited from a decline in early payoffs by homeowners are bracing for the fallout from a loosening of refinancing rules at Fannie Mae and Freddie Mac.

Prepayments for Fannie Mae’s 30-year fixed-rate securities fell 8 percent last month to a pace that would erase 21.6 percent of the debt in a year, the slowest since September, data released Feb. 6 by the Washington-based company show. Refinancing damages securities that trade for more than face value by returning principal faster at par and curbing interest.