Short Term CPR Predictions for Agency MBS: May 2022

As mortgage rates continue to climb, and MBS prices fall commensurately, CPR speeds are slowing across the board. The majority of Agency MBS pools now trade below par, with recent production 1.5’s and 2’s now trading below 90 cents on the dollar.

Compression of CPR speeds across the coupon stack is projected to continue, with even FNCL 5’s prepayments projected to fall below 30 CPR in the next month. Some FNCL 3’s are projected to drop below 10 CPR in the May 2022 release. 2017 FNCL 2.5, 3 and 3.5 cohorts are projected to drop slightly more than their companion coupon cohorts, both on an absolute CPR and percentage change basis.

Newer production pools, normally expected to “ramp up” in speeds in the first 12-18 months, are actually slowing due to the precipitous rise in rates. As an example, 2021 FNCL 1.5’s speeds are projected to drop below 4 CPR by June, well below historically normal baseline prepayment experience.