By the Numbers
Fewer refinances slow prepayments in January
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Agency MBS prepayment speeds slowed as expected in January, falling roughly 15% at Fannie Mae and Freddie Mac. Seasonal factors pulled down speeds partially offset by higher day count, and slower refinancing pulled down the pace in 6.5%s and above. Ginnie Mae speeds did not slow as much as conventionals, dropping 9.7% in the Ginnie Mae II program. The difference from conventionals was largest in higher coupons, suggesting FHA and VA refinances did not tail off as quickly as conventional following the small rally near the start of December.
Exhibit 1: January 2025 agency prepayment speeds (% change)
Source: Fannie Mae, Freddie Mac, Ginnie Mae, Santander US Capital Markets
There were some differences across coupons and cohorts between Fannie Mae and Freddie Mac; in particular, Freddie speeds tended to be slower in certain higher coupon cohorts like 6.5%s 2023. Some of this is likely due to Freddie’s loans having smaller loan sizes.
As expected after reviewing the final intra-month prepayment release, which covered all but the last two business days of the month, Yield Book’s experimental model struggled to capture prepayments this month following two months of fairly accurate predictions (Exhibit 2). It was slower than actual for all coupons but 6.5%s and 7.0%s, which were fast. The production model had similar errors in 5.0%s and above, but a stronger forecast for housing turnover helped it better capture speeds in lower coupons. Bloomberg’s updated model did a nice job capturing discount speeds but was too slow on higher coupons.
Exhibit 2. FNCL model predicted vs. actual in December.
Positive percent difference means the model was faster than actual. Red cells (dark gray in black & white printing) indicate the model was at least 10% faster than actual; blue cells (light gray) indicate the model was at least 10% slower than actual. Only cohorts included in Bloomberg’s MBS index are included.
Source: Fannie Mae, Freddie Mac, Yield Book, Bloomberg, Santander US Capital Markets.
Yield Book’s experimental model and Bloomberg’s model were both too slow on most Ginnie Mae coupons (Exhibit 3). Yield Book’s model, however, was too fast on 6%s and 6.5%s. Yield Book’s production model did the best job with discount Ginnie Mae speeds.
Exhibit 3. G2SF model predicted vs. actual in December, multiple issuer pools.
Positive percent difference means the model was faster than actual. Red cells (dark gray in black & white printing) indicate the model was at least 10% faster than actual; blue cells (light gray) indicate the model was at least 10% slower than actual. Only cohorts included in Bloomberg’s MBS index are included.
Source: Ginnie Mae, Yield Book, Bloomberg Santander US Capital Markets.
Outlook
Expect prepayment speeds to slow about 10% in February due to a drop in day count. Seasonal factors are typically comparable from January to February and rates are high enough that most borrowers cannot refinance despite roughly 20 bp lower mortgage rates since mid-January.
Cohort-level prepayment data is available here.
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