Prepayment speeds on agency mortgage-backed securities fell in July, moving inversely to climbing mortgage rates, analysts with the Royal Bank of Scotland (RBS) said in a new report.

Looking at just the conditional prepayment rate on Fannie Mae’s 30-year, fixed-rate mortgage-backed securities, it declined 9% to 23 CPR. Meanwhile, Freddie Mac’s 30-year MBS fell 7% to 24 CPR.

The Ginnie Mae I 30-year, FRM’s remained largely unchanged, while the Ginnie-II 30's fell 13% to 16 CPR.

“These speeds, however, did not fall as much as we would have expected given the substantial increase in mortgage rates from May to June,” Sarah Hu, an analyst with RBS claimed in her report.

Lower coupons (3.5s through 4.5s) led the decline. This particular group is now in the situation where they either lack refi incentive or have little opportunity to be refinance at today’s rate levels, Hu explained.

Originations that came after HARP were more sensitive to the recent rate sell-off when compared to pre-HARP mortgages, RBS suggested.

“After the Fed signaled in May that it could soon taper its $85 billion-a-month bond-buying program, the 30-year mortgage rate surged by about 100 bps to ~4.40%, while the refinance index fell from ~ 4200 to ~ 2200, its lowest level in almost two years,” RBS explained.

“While this move led to a 3-4 CPR decline among post-June 2009 originations, it resulted in a mere ~1 CPR drop for pre-June 2009 vintages.”