Short Term CPR Predictions for Agency MBS: January 2023

January prepayment speeds for 30-year uniform mortgage-backed securities (UMBS) are projected to drop by about 7% on average, with a few exceptions. Typically the slowest month of the year, January, as a seasonal factor, contributes to the drop in speeds with moderation provided by the decline in mortgage rates from mid-October to mid-November.

A few cohorts issued in 2015 or earlier would especially see a drop of more than 1 CPR in January, such as 2015 3%, 2014 3.5%, and 2013 4%. These seasoned cohorts have fully ramped up in prepayment speeds and may be slowing down more due to burnout. On the other hand, even when mortgage rates still hover above 6%, a few cohorts with 24 to 36 weighted average loan age (WALA) of seasoning are forecasted to speed up in January.

These moderately seasoned cohorts include 2020 1.5%, 2019-2020 3.5%, and 2019 4%. Looking into 2023, most cohorts may see speeds decline further in February before rising in March as the season changes to spring with a higher day count.