Mortgage Prepayments Dropped in June; JPMorgan Predicts Further Slowing in July

Reflecting a continuing drop in refinance applications, Reuters reported this morning that mortgage prepayment speeds slowed in June after rising during May — good news for bond holders:

Prepayment speeds were mostly in line with Wall Street expectations. The June figures reflected the impact of a softening housing market and tighter underwriting standards by lenders affected by the implosion of the subprime mortgage market. Overall fixed-rate agency prepayment speeds fell 7 percent in June, with the paydowns decreasing to $40 billion from $42 billion, according to JPMorgan. Net fixed-rate, mortgage-backed securities issuance was about $44 billion, the company said in a research report.

JPMorgan also sees a solid July ahead for mortgage-backed bonds, saying in the same Reuters story that it expects to see prepayments slow an additional 5 to 6 percent in July:

“Greater lock-in and weaker housing should dominate as seasonal turnover is very similar between June and July,” JPMorgan said. “Moreover, there is no difference in the number of collection days between the two months.”

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