March Analysis of Agency Issuance and Prepayments
Annual Vintage Prepayment ComparisonThis 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 $10 billion. March speeds (which reflect February data) continued their downward trend across the entire coupon stack, with the exception of Freddie 2.5s, which were up 0.9% CPR. A combination of factors contributed to the slower speeds. That February has two fewer days than January was likely the largest contributor. The usual seasonal slowdown in housing turnover contributed as well, along with a sharp runup in mortgage rates. The Freddie Mac Primary Mortgage Market Survey rate is currently 4.44% for 30-year loans, an increase of 49 bps since the start of the year.[/vc_column_text][/vc_column][/vc_row]
Cash Versus Non-Cash Pools
Originators most often exchange closed loans for a corresponding mortgage-backed security. They then have the option of retaining the MBS or selling it on the open market. MBS that result from this sort of exchange are known as “non-cash” pools. Alternatively, lenders can sell loans via the cash window. Fannie or Freddie aggregate these loans into MBS which are referred to as “cash” pools. Typically, smaller lenders use the cash window option as it eases warehouse funding concerns while allowing them to retain servicing on the loans. Issuance of cash or cash window pools has been strong over the past year (March 2017 through February 2018), accounting for 29% of all Fannie 30-year TBA issuance and more than 37% of Freddie’s issuance. Although robust, these volumes are down significantly from the 42% share for both Fannie and Freddie during the 12-month period ending February 2017.
What about performance differences? The following table shows the 1-year CPR for 30-year TBA pools broken out by cash vs. non-cash as well as coupon and GSE. The cash pools appear to prepay materially more slowly than their non-cash equivalents—more than 10 percent more slowly in the case of 3s and 4.5s.
The time series chart for the 3% cohort shows that this is a persistent trend. Clearly this should be a consideration for investors.
The origination summary breaks out new issuance volume for the top twenty issuers by GSE for the prior three months.
- For the three months ending February 2018, $97.2 billion of 30-year Fannie Mae TBA pools were issued representing 63.1% of conventional volume. 3.5s continue to be the predominant coupon, followed by 4s.
- There were only a few minor differences in the characteristics of the 3.5% issuance between Fannie and Freddie.
- The gross WAC for Freddie’s securities was 5 bps higher.
- Fannie has 2% more loans with DTIs greater than 40%.
- Freddie had a slightly greater percentage of purchase loans, 68% to 65%.
- Wells Fargo continues its dominance of the new issue market, with a 29.4% share of 30-year conventional production among the top twenty issuers. Quicken edged out Chase for second place with a 9.9% share versus 9.1%.
- The same three issuers continue to lead the 15-year sector: Wells Fargo (20.4%), followed by Quicken Loans (19.5%), and Chase (13.6%).