The rate at which mortgage pools tend to refinance is expected to reverse recent declines, according to mortgage bond analysts.
This prepayment rate forecast, "may surprise to the downside," according to Sarah Hu and Ashley Gam, MBS strategists at the Royal Bank of Scotland.
"We expect April prepayments to increase by 3-5% based on faster housing turnover, stronger seasonality (+ 15%) and an increased day-count (+ 5%)," they write in a note to clients. Hu and Gam added that Bank of America (BAC) and Citibank (C) mortgage pools are prepaying at a faster rate than JPMorgan Chase (JPM) and Wells Fargo ">.
Charles Tu, vice president of U.S. fixed income at TCW, said recent prepayment rate results came in close to expectations.