Mortgage Prepayments Decrease in January

Prepayments on U.S. mortgage-backed securities decreased in January, with weaker seasonal factors offsetting the impact of an additional calendar day, Wall Street analysts said Tuesday and Wednesday.

A Reuters report states that fixed-rate agency prepayment speeds fell by 6 percent in January, with the paydowns decreasing to $37 billion from $41 billion, according to JPMorgan.

Net fixed-rate, mortgage-backed securities issuance was about $24 billion, the company said in a research report. Prepayment speeds are factors for investors to determine the value of home mortgage bonds. If prepayments rise or fall too quickly, they hurt returns on mortgage securities.

The decline in speeds in January offset some of December’s increase, JPMorgan said.

December’s 12 percent increase was primarily driven by a fall in mortgage rates, which spurs home loan refinancing, a key factor in prepayment speeds.

January’s prepayment speeds were mostly in line with to slower than market expectations. Most of the impact of a rise in home loan refinancing activity at the beginning of December showed up in speeds during that month, while declining seasonal factors offset one extra calendar day in January.

It added that rising seasonal factors should begin affecting speeds of mortgage prepayments, up until June.

Analysts expectations on February prepayment speeds vary widely, from flat to a 5-10 percent decrease. February speeds are expected to slow due to a drop in the number of calendar days.