By the Numbers
Seasoning, not quick refis, lifts April MBS speeds
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April prepayment speeds matched expectations but threw a curveball at models that did not anticipate more refinancing. Faster prepayments over the last few days of April raised questions about shortening timelines to close refinances. A change to prepayment reporting on some Fannie Mae pools added to the confusion. But neither of these likely were important factors in April. Instead, speeds in refinanceable loans did appear faster compared to similar environments in the fall but largely because loans are more seasoned today.
More premium loans have lost low-WALA prepayment protection.
The likely reason speeds were faster in April compared to similar rate environments at the end of 2024 is that fewer loans had low-WALA prepayment protection (Exhibit 1). The premium coupon cohorts have grown, and a larger portion of those cohorts has seasoned at least six months. This means larger refinance volumes, and speeds, for the same rate incentive compared to similar environments last fall.
Exhibit 1. Fewer loans in the 2024 vintage have low-WALA prepayment protection.
Source: Fannie Mae, Freddie Mac, Santander US Capital Markets.
Prepayments exhibited a typical increase at the end of April
Prepayments spiked at the end of April, but this is typical (Exhibit 2). This histogram shows how common various size spikes occur, using Freddie Mac’s daily prepayment data from the start of 2019, and measures the percent increase in prepayments compared to the rest of the month. Over 90% of the time, prepayments are faster at the end of the month, and the typical increase is 34%. April was a typical month—prepayments increased 37.5% at the end of the month. It is unlikely that the brief rally at the start of April contributed much to this increase.
Exhibit 2. Prepayments typically increase at the end of the month
Covers 76 months of daily prepayment speeds, from January 2019 through April 2025.
Source: Freddie Mac, Santander US Capital Markets.
An increase like April’s should already be implicitly calibrated into prepayment projections.
Fannie’s reporting change mostly affected March prepayments, not April
The timing of Fannie Mae’s announcement about a change in reporting for “Actual/Actual” loans—which are most loans in cash window pools—might suggest that it had a material effect on April speeds. Prepayments received for these loans on the last day of the month had been recognized on the first day of the following month, and in March Fannie began recognizing these prepayments in the correct month. This aligns prepayment reporting with other Fannie Mae pools and with Freddie Mac’s pools.
However, this did not have much effect on speeds—shifting prepayments from May to April was largely offset by shifting prepayments from April to March. The March print, which was already in the past when the change was disclosed, was faster—it included extra prepayments from April that were not offset by a shift of prepayments into February.
Prepayment lags are shorter, but likely didn’t affect April
The lag from rate lock to prepayment likely ranges from 24 days to 33 days (Exhibit 3). Speeds of 2023 vintage in-the-money pools over the last year were regressed on rate incentives calculated using lags from one to 90 days. The graph plots the adjusted R2 for each regression, and the 10th percentile ranges from 24 days to 33 days. The daily prepayment data also points to short lags.
Exhibit 3. Recent speeds point to a 24 day to 33 day rate to prepayment lag
Source: Fannie Mae, Freddie Mac, Santander US Capital Markets.
However, shorter lags likely were not a significant factor in April. Rates were steady in March and the early April rally was short and shallow. So, the lagged rate for April is insensitive to the choice of lag. The driving rate only changes about 6 bp when varying the lag from 15 days to 45 days.
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