Model Performance - April '07

Prepayment Analysis
by Dan Szakallas

Prepayments came out of the winter doldrums in March, posting overall increases for the first time since November to December. We observed a balance-weighted average increase of 15-17% for FNMA 30-yr 6.0’s to 7.0’s, and an 11-14% increase for the same coupons in FHLMC 30-yrs. Interestingly, there was a small 1% drop in the FNMA 7.5’s and 8.0’s, which shows just how burnt out those pools are. Overall, the balance-weighted average increase for all FNMA 30-yr coupons was 16%, which is almost right on point with the 15% we predicted last month. The GNMA’s behaved a bit differently, as there was only a single-digit percentage increase across all 30-yr coupons in the 5.5-8.0 range. Looking at the FHLMC hybrid ARM data, we observed balance-weighted average increases between 12-20% in Libor and Treasury indexed 5/1’s, 7/1’s, and 10/1’s (all during their initial reset period), while 3/1’s posted a very large increase of almost 40%, most likely due to reset behavior.

v5.2b Fixed Rate