April Analysis of Agency Issuance and Prepayments
RiskSpan’s monthly analysis of agency issuance and prepayments revealed several interesting trends with the release of April factor data. Prepayment speeds spiked with almost all coupons showing double-digit jumps. We also examine issuance trends during the first quarter of 2018 as well as difference in characteristics by GSE for two large issuers.
Annual Vintage Prepayment Comparison
This report shows historical prepayment speeds by vintage and coupon for all 30-year TBA cohorts with an outstanding balance (Fannie Mae + Freddie Mac) greater than $500 million.
April speeds were up sharply across the board, except for 4.5s which also rose, but only by 7.2% for Fannies and 7.5% for Freddies. The remaining coupons, from 2.5s through 5.5s, saw double-digit jumps, more than reversing March’s slide. Two additional business days in the April reporting period (which reflects March activity) certainly helped, along with the beginning of the spring buying season. Some fence sitters, reacting to the Fed’s most recent rate hike and deciding to act, were also likely a contributing factor.
This report breaks out new issuance volume for the top twenty issuers by GSE for the prior three months.
- For the first quarter of 2018, $141.5 billion of conventional, 30-year TBA pools were issued. Fannie Mae captured 64.6% of the volume, while 3.5s and 4% coupons comprised the bulk of the pools issued, accounting for 49% and 35% of the total.
- The volume of 15-year TBA pools totaled $19.1 billion for the quarter, representing just under 12% of the total TBA issuance.
- Total issuance of TBA pools (30-year plus 15-year) was down 7% in March ($51.1 billion) relative to February’s production. It was also the lowest volume since April 2017.
- Among the top twenty issuers, Wells Fargo dominates with 32% of the volume. Quicken Loans is a distant second with 11%, followed by United Shore and Chase each with just under a 6% share.
- In the 15-year sector, Wells Fargo (21.6%) edged out Quicken Loans (19.9%) for the volume title, while Chase was third with 8.6%.
The table below focuses on 30-year TBA 3.5% pools issued during the first quarter of 2018 by GSE and two large issuers, Chase and SunTrust. At an aggregate level the differences between Fannie and Freddie issuance are relatively minor. However, the contrast between the Fannie and Freddie pools issued by Chase and SunTrust exhibit some stark differences with the risk profile skewed towards one GSE or the other.
Total Fannie vs Freddie
- Freddie pools have a higher average LTV (1.3%).
- Fannie pools have a greater percentage of loans with a FICO above 740 (1.1%).
- Fannie pools have a higher percentage of loans with a DTI greater than 40% (2.1%).
- Freddie pools have a greater percentage of loans on investment properties (0.5%).
- Fannie pools have a higher average LTV (2.0%).
- Freddie pools have a higher average FICO score (12) and a greater percentage of loans with a FICO above 740 (11.8%).
- Fannie pools have a much higher percentage of loans with a DTI greater than 40% (34.7%).
- Fannie pools have a greater percentage of loans on investment properties (0.8%).
- Freddie pools have a higher average LTV (3.7%).
- Fannie pools have the edge with average FICO (12) and the percentage of loans with a 740 or greater FICO (13.3).
- Freddie pools have a greater percentage of loans with a DTI above 40% (4.8).
- Freddie pools have more investor loans (1.5).