By the Numbers
A fast February sets up a faster March in MBS
This material is a Marketing Communication and does not constitute Independent Investment Research.
MBS prepayment speeds accelerated in February, lifted by strong refinancing activity, setting the stage for even faster speeds in March. The trailing mortgage rates likely to fuel March refinancing fell another 10 bp since February, there are three additional business days in March, and seasonal turnover begins to increase in March—each of these factors pointing to faster prepayments. The TBA dollar roll market, however, does not seem prepared.
TBA prepayments for March look likely to come in at 59.2 CPR in 30-year 6.0%s and 66.6 CPR in 6.5%s, but the breakeven speeds implied by the TBA dollar roll in those coupons are only 51.4 CPR and 54.9 CPR, respectively (Exhibit 1). Breakeven speeds also appear to have been slow compared to estimates of TBA speeds in February, and the March breakevens are only marginally faster than February’s.
Exhibit 1. Dollar roll breakeven speeds versus expectations
Cohort and TBA speeds for February are estimated using Fannie Mae and Freddie Mac intra-month data. March speeds are projections. Roll break even speeds from Yield Book as of 2/6/2026 (February) and 3/4/2026 (March).
Source: Fannie Mae, Freddie Mac, Yield Book, Santander US Capital Markets.
Overall speeds increased at Fannie Mae, Freddie Mac, and Ginnie Mae (Exhibit 2). Conventional speeds jumped around 20%, leaving Fannie’s at 9.0 CPR and Freddie’s at 9.9 CPR. Ginnie speeds increased 14% to 12.0 CPR. The conventional results were a little less than expectations of a 25% gain at the start of the month, and even recent intra-month data was pointing to that level. Prepayments on the last two days of the month were a little softer than anticipated. Ginnie speeds were likely weaker than conventionals since FHA and VA mortgage rates did not drop as much as conventional rates. The strongest gains came in refinanceable coupons.
Exhibit 2. January 2026 Agency Prepayment Speeds, % Change
Source: Fannie Mae, Freddie Mac, Ginnie Mae, Santander US Capital Markets.
The largest percentage gains came in 2025 vintage collateral. For example, the Fannie 6.0%s 2025 jumped 44.0% to 25.7 CPR from 18.6 CPR. Loans originated in the middle of the year were not seasoned enough to refinance in October but jumped at the opportunity in February. But late-2025 originations were not seasoned enough to fully participate in this month’s refinancing. That left the 2024 vintage as generally fastest overall. For example, the 6.0%s 2024 increased 37.1% to 32.7 CPR from 25.0 CPR.
Yield Book’s experimental v97 model was close to the actual speed in aggregate but was a little slower than actual in many coupons (Exhibit 3). The biggest misses were in the middle of the stack. It was very slow on 4.5%s and 5.0%s but around 10% too fast on 5.5%s. It tracked 6.0%s well and was only about 5% slow on 6.5%s and 7.0%s. This is a much better result than during the refi wave in October. Yield Book’s production model and Bloomberg’s prepayment model were both very slow in premium coupons.
Exhibit 3. 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. BAM is v 1.47.
Source: Fannie Mae, Freddie Mac, Yield Book, Bloomberg, Santander US Capital Markets.
All three models were fast overall on Ginnie Mae MBS, and this was generally driven by overpredictions on lower coupon pools (Exhibit 4). Results in higher coupons were mixed, but all three models were too slow in 6.5%s and 7.0%s.
Exhibit 4. 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
Prepayment speeds should increase by another 25% to 30% in March as refinancing continues accelerating and housing turnover picks up steam into the spring. Three additional business days will also help to lift speeds. More borrowers should refinance in March since primary mortgage rates drifted lower throughout January and February (Exhibit 5). Conventional mortgage rates have fallen a little more than FHA and VA rates since the start of the year, likely a result of stronger expected demand for conventional MBS from Fannie Mae and Freddie Mac’s investment portfolios. Conventional rates are down about 14 bp, FHA rates down about 11 bp, and VA rates are unchanged.
Exhibit 5. Primary mortgage rates
As of 3/3/2026.
Source: Optimal Blue, Santander US Capital Markets.
Therefore, lagged mortgage rates drop roughly 10 bp in February and another 7 bp in March using a 21-day lag (Exhibit 6). The declines are comparable using longer 30-day and 45-day lags.
Exhibit 6. Lagged conventional mortgage rates
As of 3/3/2026.
Source: Optimal Blue, Santander US Capital Markets.
The refinance index has climbed higher over the last few weeks, pointing to fast refinancing in higher coupon pools in March (Exhibit 7). The conventional index is back to the level it reached in late January, while the VA index has climbed even higher. It is approaching the level it reached last September and a sign that VA speeds are poised to increase even more than conventional speeds next month.
Exhibit 7. MBA refinance index
As of 3/3/2026. All indices normalized to 100 at the start of the charted period.
Source: Mortgage Bankers Association, Bloomberg, Santander US Capital Markets.
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