Higher prepayment rates are helping delinquency rates on 90-day 30-year Ginnie Mae mortgages to fall, a new report from Barclays suggests.
The delinquency rates on such mortgages originated from 2005 to 2009 are below year-ago levels. Among those years, delinquency rates on mortgages originated in 2006 — when home prices hit their peak — are down the most, falling 28% to 2.8% in August from 3.9% in September 2011. Those originated in 2009 fell to 6.6%, the highest rate in August, from 8.1% a year earlier.
Homeowners are refinancing more, taking advantage of sliding mortgage rates and producing greater prepayment risks to mortgage originators and investors.
The outstanding balance of mortgages originated by the top five mortgage servicers from June to August stands at $419 billion, shrinking form their original balance of $1.2 trillion. Prepayment rates in that period rose to 27.8% in August from 20.4% in June.
Citigroup (C) holds the highest risk at 33.6%, rising from 25.3% in June. Wells Fargo (WFC), the nation’s largest mortgage lender, has a prepayment risk of 29.3%. JP Morgan Chase (JPM) has the lowest at 22.8%.
As mortgage rates hit record lows in July, refinancing activity continued to pick up, leading to an increase in mortgage-backed securities prepayment speeds.
“Most of the speed increase was driven by lower coupons due to their large loan size, little burnout effect and high TPO concentration,” Sarah Hu with the Royal Bank of Scotland (RBS) said in August.
