March prepayments had a little bit for everyone but mostly it was faster prepay speeds that printed before the economy ran off the rails owing to the coronavirus shutdown. The March report saw aggregate conventional Fannie Mae 30-year speeds rise 42%, double the consensus call for a 20% increase. Ginnie Mae II 30-year aggregate speeds were 14% higher. The speed reports going forward may be severely muted by social distancing and planned programs for payment deferrals as discussed below.

  • Fannie Mae 2.5%, 3% and 3.5% 30-year coupons saw their 2019 vintage speeds change by +8%, +11% and +14%, respectively. For Ginnie Mae 2.5%, 3% and 3.5% of 2019 vintage, the changes were +1%, +8% and +8%, respectively.
  • Among the fastest-paying 30-year Fannie Mae majors that were issued during the first six months of 2019, the 4% MA3592 saw CPR rise 18% to 57.2 from 48.6, the 3.5% MA3597 increased 16% to 48.6 CPR and the 3% MA3644 was higher by 26% to 48.9 CPR.
  • The new CARES Act has added a new  forbearance program for mortgage debtors struggling financially from the fallout of the virus. Forbearance is a temporary suspension of scheduled mortgage payments that borrowers are required to eventually make up.
  • During forbearance, servicers advance principal & interest payments on behalf of the borrower. The law provides for up to a 6 month deferral period followed by another 6 month period, if deemed necessary. Loans in forbearance jumped from 0.25% on March 2 to 2.66% on April 1. Expect that number to continue higher.
  • A delinquency buyout resulting in an involuntary prepayment will occur if the borrower cannot repay the missed payments in a timely manner & the servicer determines that the loan needs to be modified.
  • Obviously, the size of a potential buyout surge will depend on the length of the economic shutdown and the amount of missed payments that have to be made up. At the same time, payment deferrals will slow prepayments from that cohort that eventually returns to work and resumes payments.
  • Thus, it looks like we’re in for a rollercoaster ride on prepayments. Extreme slowing in speeds in the next several months as payment deferrals are granted and then at some point later this year, perhaps November and into next year, increasing speeds as buyouts remove loans that borrowers can’t repay. In the meantime, MBS spreads remain above 2019 averages.

15 year MBS Yield

Published: 04/15/20 Author: Thomas R. Fitzgerald