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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (46748)	12/7/2005 12:49:50 PM
From: russwinter	Read Replies (1) \| Respond to of 110194

U.S. mortgage bond prepayments slide in November Wed Dec 7, 2005 11:32 AM ET NEW YORK, Dec 7 (Reuters) - Rising U.S. mortgage rates and a seasonal slowdown in housing turnover triggered a double-digit slump in November mortgage bond prepayments, Wall Street analysts said on Wednesday. Net mortgage-backed securities issuance jumped, meantime, as borrowers refinanced into longer term fixed-rate loans from hybrid and adjustable-rate mortgages, analysts said. Overall fixed-rate agency prepays fell by 14 percent last month as paydowns fell to $45 billion from October's $52 billion, according to JP Morgan. About $23 billion of fixed-rate mortgage-backed securities were issued, pushing net issuance this year to $91 billion. "The 15-year market share continues to dwindle, dropping by $56 billion year-to-date with the 30-year market increasing by $144 billion so far this year," JP Morgan wrote in a report. "The pace of increase in the 30-year sector has sharply accelerated over the last three months and if sustained, could lead to almost $200 billion in net growth over the next 12 months, which would match the supply in 2000," the firm said. The pace of prepayments is key for investors to gauge the value of their mortgage holdings. Returns can deteriorate if prepayments rise or fall beyond forecasts. Prepayments typically slide as mortgages rates climb, reducing the incentive for homeowners to refinance. Housing turnover usually ebbs in winter months, also slowing prepays. Prepays on 15-year mortgages fell 10 percent in November, significantly less than 30-year speeds, according to Bear Stearns research. "The trend is almost certainly a byproduct of a general softening in the housing market; at the very least a slowing in the pace of home price appreciation," according to JP Morgan. Mortgage funding company Freddie Mac (FRE.N: Quote, Profile, Research) said 30-year U.S. home loan rates averaged 6.33 percent in November, up from 6.07 percent in October and 5.73 percent in November 2004. Fifteen-year mortgages averaged 5.86 percent last month, up from 5.63 percent in October and 5.14 percent a year earlier. Many prepay speed changes were in double digits in percentage terms last month, according to Bear Stearns. Fannie Mae (FNM.N: Quote, Profile, Research) 30-year 5 percent, 5.5 percent and 6 percent coupons fell 19 percent, 18 percent and 20 percent, respectively, the firm said in new research. "For the first time in recent memory, discount speeds declined slightly more than expected," Bear Stearns said. "Despite this decline, discount speeds continue to remain at historically high levels, driven by vigorous cash-out refinancing and housing turnover activity." Prepays on fully seasoned 5 percent coupon Fannie Mae MBS created in 2003 were prepaid at conditional prepayment rates, or CPRs, of 12.5 in November. CPRs represent the percentages of outstanding mortgage principal that prepay in one year based on the loan principal prepaid in one month. Aggregate prepays on 30-year Fannie Mae bonds fell 3 CPR last month to 15.4 CPR, while Freddie Mac bond prepays declined 2.4 CPR in November to 14 CPR. In the 15-year sector, overall prepays on Fannie Maes fell to 12.1 CPR from October's 13.6 CPR, with Freddie Mac speeds slowing to 11.7 CPR from 12.8 CPR. Analysts call for prepayments to slide through December based on further mortgage rate increases, and slowing refinancing and winter home purchases.