By the Numbers
Refinancing surges in October
This material is a Marketing Communication and does not constitute Independent Investment Research.
Prepayment speeds jumped higher in October on a surge in refinancings after mortgage rates dropped in September. Speeds moved past the recent high marks set in October 2024. Short timelines to close loans contributed to the faster prints, likely pulling forward prepayments that a few years ago might have closed in November. One extra business day also helped lift speeds. Rates have also remained low for longer than last fall. Low loan balance specified pools and New York pools largely resisted the shift to faster speeds, but Texas pools and investor pools prepaid much faster than last year.
Fannie Mae speeds jumped 34% overall while Freddie speeds increased 39% (Exhibit 1). The largest discrepancy was in 5.5%s, which increased 55% at Fannie and 64% at Freddie. Ginnie II speeds increased 33%, in-line with Fannie. However, Ginnie increases were greater in 5.0%s and 5.5%s and smaller in 6.0%s and above. This is because FHA and especially VA borrowers receive lower mortgage rates than conventional borrowers, so a given coupon tends to be further in-the-money.
Exhibit 1. October 2025 Agency Prepayment Speeds, % Change
Source: Fannie Mae, Freddie Mac, Ginnie Mae, Santander US Capital Markets.
Models struggled to capture the increase (Exhibit 2). Yield Book’s recently released v97 experimental model outperformed its current production model, but still fell nearly 20% short in 6.5%s and 7.0%s. But the production model was over 30% slow in those coupons, and Bloomberg’s model, BAM, was around 40% slow. The v97 model captured discount speeds very well, while the production model continued to be too fast and BAM was a bit too slow.
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. Yield Book v97 is the latest experimental model released in October 2025.
Source: Fannie Mae, Freddie Mac, Yield Book, Bloomberg, Santander US Capital Markets.
All three models struggled to capture the refinancing pickup in Ginnie Mae 5.0%s and above (Exhibit 3). There was little difference between v97 and production. BAM was much slower than either Yield Book model, and also too slow in discounts.
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. Yield Book v97 is the latest experimental model released in October 2025.
Source: Ginnie Mae, Yield Book, Bloomberg, Santander US Capital Markets.
Prepayment outlook
November is a short month with 3 fewer business days than October. That alone will help slow prepayments. But another factor is that, although mortgage rates spent much of October below the low point in September, the refinance index is about 20% below the September peak (Exhibit 4). Short lags may have boosted speeds in October, but it appears that many of those prepayments were pulled forward from November. It’s less clear that increased originator efficiency is creating many new refinances. Speeds could slow 25% to 30% from the combination of slower refis, lower day count and seasonal declines in home purchase activity.
Exhibit 4. MBA Refinance index
Source: Mortgage Bankers Association, Bloomberg, Santander US Capital Markets.
The refinance index drop is even larger for conventional and VA loans. The conventional refinance index is 25% below the September peak and the VA index is 33% below the peak. The outlier are FHA loans, which peaked in mid-October. This is another sign that burnout has grown in the more refinanceable conventional and VA sectors, so originators are turning their attention to FHA loans. FHA loans tend to be smaller, and borrowers less likely to refinance, so they receive less focus from loan officers earlier in a refinance wave.
Specified pool recap for in-the-money coupons
Since overall speeds were faster this month than last October, comparing the two months can show which specified pool types provided the best prepayment protection. The 5.5% coupon was only marginally in-the-money, so most specified pools prepaid similarly in October 2024 and October 2025 (Exhibit 5). The chart compares speeds on 5.5% 2023 and 2024 cohorts in October 2025 to speeds on the 5.5% 2023 cohort in October 2024. The New York and low loan balance pools all prepaid similarly to last year; these pool types typically have the strongest prepayment protection.
Exhibit 5. FNCL 5.5% 2023 and 2024 specified pool results
Source: Fannie Mae, Freddie Mac, Santander US Capital Markets.
However, Texas pools prepaid much faster this month than last year—the 2024 vintage reached nearly 30 CPR, faster even than the speeds of generic pools.
Investor pools also prepaid a lot faster this year. Florida and low FICO pools showed modest increases compared to last year.
The picture is similar in the 6.0% coupon (Exhibit 6). Low loan balance and New York pools showed little refinance response. Low FICO also fared well. Florida pools prepaid faster, but speeds were in line with Max $200k pools. But 2024 vintage Texas and investor pools prepaid much faster than in October 2024.
Exhibit 6. FNCL 6.0% 2023 and 2024 specified pool results
Source: Fannie Mae, Freddie Mac, Santander US Capital Markets.
The 6.5% coupons is showing more signs of refinance activity in the various specified pool stories (Exhibit 7). But the year-over-year difference is less pronounced than for 5.5%s and 6.0%s.
Exhibit 7. FNCL 6.5% 2023 and 2024 specified pool results
Source: Fannie Mae, Freddie Mac, Santander US Capital Markets.
Overall, this shows that most of the refinancing picked was concentrated in generic pools and a few weaker specified pool types. And many of these borrowers had limited opportunity to refinance before this month, so reacted strongly to the first opportunity to refinance that they encountered.
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