By the Numbers
Refinancing picks up while turnover disappoints in July
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Discount prepayment speeds came in slower than expected in July, underperforming the lift expected from two additional business days. Refinancing gained steam over the second half of the month in 30-year 6.5%s and 7.0%s in response to the late June rate rally. In those coupons, New York pools provided the most prepayment protection generally followed by various low loan balance categories. However, speeds were similar across most loan size categories—the lower pay-up, higher balance, pools were a better value.
Conventional and Ginnie Mae speeds increased 3% to 4% overall (Exhibit 1). Discount speeds were generally close to unchanged, whereas the combination of faster speeds from additional business days and slightly slower seasonal factors pointed to a roughly 5% increase. Speeds on 6%s and higher had healthy increases as borrowers, especially in the 2024 vintage, reacted quickly to the short-lived rally in June.
Exhibit 1. July 2025 Agency Prepayment Speeds, % Change
Source: Fannie Mae, Freddie Mac, Ginnie Mae, Santander US Capital Markets.
Projections using the daily prepayment data had pointed to somewhat softer increases in those premium coupons; prepayments came in a bit heavier than forecast over the last week of the month.
Yield Book’s new model performs well for second straight month
Yield Book’s latest production prepayment model, v25.1, was reasonably accurate in July (Exhibit 2). The model was still too slow on cuspy coupons, although by a much narrower margin than the predecessor model. It was somewhat fast on 6.5%s and 7.0%s. But the error on most coupons was within 10%. Bloomberg’s model continues to run too slowly; a major contributor is the model’s mortgage rate projection is too high.
Exhibit 2. FNCL model predicted vs. actual
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.
Source: Fannie Mae, Freddie Mac, Yield Book, Bloomberg, Santander US Capital Markets.
Both models had similar behavior on Ginnie Mae MBS as they did for conventional. Yield Book’s model was very close to actual in discounts, slightly slow in cuspy coupons, and fast on 6%s and above. However, the errors on Ginnie 6.0%s and 6.5%s were larger than the conventional errors on those coupons. Bloomberg’s model was slow across the stack, with errors ranging from 10% to as much as 30%.
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.
Source: Ginnie Mae, Yield Book, Bloomberg, Santander US Capital Markets.
Prepayment outlook
Seasonal turnover is roughly flat from July to August, so one fewer business day should pull discount speeds down around 5%. Refinancing activity is likely increase slightly from July to August, as mortgage rates are about 3 bp lower using a 21-day lag and 5 bp lower on a 30-day lag. Speeds should end up flat to down 5% in total. At current mortgage rates, refinancing should still be out-of-reach for conventional borrowers in 6% and lower coupons (Exhibit 2). However, Ginnie Mae 5.5%s should experience some refinance activity from VA borrowers.
Exhibit 4. Share of conventional MBS that is in-the-money to refinance.
Highlighted column represents mortgage rates as of 8/6/2025.
Source: Fannie Mae, Freddie Mac, Yield Book, Bloomberg, Santander US Capital Markets.
Specified pool recap for in-the-money coupons
The strongest refinance response came from 6.5%s, with the 2024 vintage reaching 18.0 CPR for Fannie Mae 30-year MBS and 18.9 CPR for Freddie Mac. Speeds of generic pools exceeded 22 CPR (Exhibit 4). Texas pools offered no prepayment protection, prepaying a bit faster than generic. Other specified pool categories prepaid much slower than generic pool, but prepayment speeds were similar across most categories. New York pools were the exception. But other than New York, the best value was had from low pay-up stories.
Exhibit 5. FNCL 6.5% 2024 specified pool results
Source: Fannie Mae, Freddie Mac, Santander US Capital Markets.
The picture was similar in 7.0%s 2024 (Exhibit 5). Generic speeds exceeded 32 CPR. This coupon is smaller, so a few spec pool categories are not shown (these are too small for Bloomberg’s MBS index). Investor and low FICO pools prepaid faster than low loan balance, showing that loan balance pools retain their prepayment protection deeper in-the-money. This is also true of New York. However, speeds across loan balance categories from Max $175k through Max $250k were similar, again suggesting that at these rate incentives the best value came from the larger balance buckets that are available at lower premiums over TBA.
Exhibit 6. FNCL 7.0% 2024 specified pool results
Source: Fannie Mae, Freddie Mac, Santander US Capital Markets.
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