US mortgage bond prepayments rise in Feb - Freddie

Mon Mar 7, 2005 10:22 AM ET
By Julie Haviv

NEW YORK, March 7 (Reuters) - Prepayments on U.S. mortgage bonds increased last month in response to a drop in mortgage rates in late January and early February, Wall Street analysts said on Monday.

Analysts estimated that about $49 billion in fixed-rate mortgages that backed bonds guaranteed by Fannie Mae (FNM.N) and Freddie Mac (FRE.N) were paid down in February, compared to January's $46 billion.

February's prepayment speeds reflect borrower response to an average 30-year mortgage rate of 5.77 percent, according to Credit Suisse First Boston analysts.

February's prepayment changes on mortgage-backed securities came in line to slightly faster than Wall Street expectations, with the speed on Freddie Mac's mortgage bonds increasing more than Fannie Mae's issues.

After last month's prepayments, net issuance of fixed-rate mortgage bonds was approximately negative $6 billion versus the positive $8 billion registered in January.

Paydowns on fixed-rate MBS are seen rising by 35 to 40 percent to $68 billion in March, according to JP Morgan. That is because there are 3.5 additional collection days in the month and seasonal turnover is 30 percent higher, the firm said. Also, the Mortgage Bankers Association's refinancing index implies a significant pick-up in activity.

JP Morgan said the trend upward should end in April where it expects a drop of about 10 percent, due to the recent back-up in mortgage rates and two fewer collection days.