JPMorgan sees GSE prepayment rates slowing in January
JPMorgan analysts expect prepayments to begin to slow in January after rising for mortgages held by both Freddie Mac and Fannie Mae in November. The investment bank adds that the number of borrowers who can refinance their mortgages is greatly shrinking. The prepayment speeds on Fannie 15-year mortgages increased 5% last month from October, while Freddie prepayments climbed 8%, according to JPMorgan. Analysts said November data continue the "theme of gradually rising prepayment speeds driven by a slow and steady build out of originator capacity, and modulated by collection day calendars." Loans originated in 2008 remain the highest paying vintage for conventional, 30-year pools, while 2009 mortgages are slower than nearly every other vintage. Analysts said the rise of 60 basis points in secondary mortgage yields lifted primary rates 30 to 40 basis points. Meanwhile, the number of loans eligible for a refinancing declined by one-fifth to one-fourth, and "the population of borrowers likely to refinance has shrunk 40%," according to JPMorgan. The analysts project December prepayment speeds to remain flat with the prior month, with "meaningful slowdown" next month, as "weak seasonal factors and fewer collection days lead to a 20% to 25% lower aggregate speed." Meanwhile, November prepayments for Ginnie Mae mortgages remained relatively flat with the previous month with some slow down in 4.5% and 5% coupons and increases for 5.5% and 6% coupons, according to JPMorgan. Analysts attributed the gains in premium Ginnie prepay speeds to Bank of America buying back delinquent loans. "Though the timing of major servicer buyout can be idiosyncratic, its impact on cohort prepays are muted thanks to the manageable delinquency levels overall," JPMorgan said. Analysts expect Ginnie prepayment speeds to continue "to be range bound in the near term," as lenders tighten underwriting standards and demand for refinancing cools with interest rates moving away from generational lows. Write to Jason Philyaw.