Short Term CPR Predictions for Agency MBS: September 2022

Prepayment speeds for most MBS cohorts will continue to slow in this higher rate environment, although there might be some near-term exceptions to that trend. Mortgage rates fell somewhat in July and early August, before rising again in late August and early September.

As such, a small rise in prepayment speeds for some MBS cohorts over the next few months is possible before these pools return to their longer-term slowing trend. Obviously, future prepayment speeds are subject to changes in rates and other factors.

Within the coupon stack it is worth noting that despite significantly discount dollar prices, 2019 3.5% MBS continue to prepay at speeds well above 10% CPR, and 2019 4% collateral is expected to stay up around 14% CPR in the next several months.

These seemingly fast “prints” are in the context of an MBS market that is now mostly discount collateral with significantly slower prepayment rates. A year ago those same 2019 3.5% and 4.0% cohorts were paying at nearly 45% and 43% CPR respectively.