By the Numbers
Refinancing slows as turnover accelerates
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Mortgage refinancing slowed as expected in May while the pace of prepayments due to housing turnover picked up. Speeds on premium-priced coupons slowed, and lower coupons prepaid faster. In aggregate, conventional speeds were flat. But Ginnie Mae speeds slowed overall, primarily due to larger declines in 5.5%s and 6%s. These Ginnie Mae coupons had been more refinanceable than the same conventional coupon because VA borrowers receive lower mortgage rates. The Ginnie Mae pools increased more as mortgage rates dropped, and now are slowing more as mortgage rates increase.
A review of May speeds in higher-coupon specified pools shows a few notable results:
- Yield Book’s experimental model underpredicted speeds in various spec pool categories in 5.5%s and 6.0%s
- Errors were especially large in the smaller loan size pool types and in Texas pools
- Speeds, and prepayment protection, was similar across loan sizes in 6.5%s; smaller loans provided little value in that coupon this month.
Exhibit 1: May 2025 Agency prepayment speeds (% change)
Source: Fannie Mae, Freddie Mac, Ginnie Mae, Santander US Capital Markets.
Yield Book’s v97 experimental prepayment model fared better this month for conventional pools (Exhibit 2). However, it was still slow on cuspy 5.0%s, 5.5%s and 6.0%s. And it is likely to underpredict speeds the next time rates fall and refis increase. Bloomberg’s prepayment model, BAM, continues to be slow in higher coupons and failed to track the turnover pickup this month.
Exhibit 2. FNCL model predicted vs. actual
Note: Shaded cells are more than 10% different from speeds inferred from the daily prepayment report. Blue indicates the model is slower, red indicates the model is faster. YB v97 is Yield Book’s experimental model released in April 2025.
Source: Fannie Mae, Freddie Mac, Yield Book, Bloomberg, Santander US Capital Markets.
Yield Book’s experimental model struggled more with Ginnie Mae speeds (Exhibit 3). It was slow on everything 5.5% and below, but fast on 6.0%s and above. Bloomberg’s model was slow across the stack.
Exhibit 3. G2SF model predicted vs. actual, multiple issuer pools
Shaded cells are more than 10% different from speeds inferred from the daily prepayment report. Blue indicates the model is slower, red indicates the model is faster. YB v97 is Yield Book’s experimental model released in April 2025.
Source: Ginnie Mae, Yield Book, Bloomberg, Santander US Capital Markets.
Outlook
Seasonal turnover continues to increase in June, but speeds should be tempered by one fewer business day. Lower coupons should still net out a little faster, around 5%. The remaining refinance volume in higher coupons should continue to abate as lagged mortgage rates increase roughly 8 bp. Speeds there could fall another 10% to 20%. In aggregate, speeds are likely to be flat to down slightly. Ginnie Mae speeds should more than conventional in higher coupons, since Ginnie Mae refis are more sensitive to changes in mortgage rates.
A quick recap of higher coupon spec speeds
Yield Book’s model was slow in 5.5%s overall, and that carried over to every spec pool category in the 2024 vintage (Exhibit 4). Across loan balance, the model gap widened at smaller loan sizes, suggesting it is undervalued the extension protection afforded by smaller loans. In GEO stories, the model expected Texas to be a hair slower than Florida, but Texas pools prepaid around 2 CPR faster than Florida.
Exhibit 4. FNCL 5.5% 2024 specified pool results.
Source: Fannie Mae, Freddie Mac, Yield Book, Bloomberg, Santander US Capital Markets.
The pattern is similar in FNCL 6%s, with the model missing across stories (Exhibit 5). The gap is especially wide in LLB, MLB, Texas and Investor collateral. The model was pretty accurate on generic pools, which prepaid much faster in 6%s than in 5.5%s.
Exhibit 5. FNCL 6.0% 2024 specified pool results.
Source: Fannie Mae, Freddie Mac, Yield Book, Bloomberg, Santander US Capital Markets.
The higher refinance activity and the prepayment protection afforded by the various specified pools is evident in 6.5%s (Exhibit 6). The model was much closer on the various spec stories than it was in 5.5%s and 6%s. Speeds were very similar across all the loan balance pool types. In May there wasn’t any benefit to paying up for the smaller balance pool types. Florida pools were also slower than Texas in this coupon, a sign that Florida offers better prepayment protection while Texas offers better extension protection.
Exhibit 6. FNCL 6.5% 2024 specified pool results.
Source: Fannie Mae, Freddie Mac, Yield Book, Bloomberg, Santander US Capital Markets.
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