Over the last six months, TBA speeds have progressively accelerated and are poised to print even faster given the recent lows in primary rates and near doubling in the Refi Index. But how do these speeds compare against previous refi cycles? In this short piece, we compare today’s S-curve against the 2012-13 cycle and the massive refi wave in 2002-03.

First, we start by running an S-curve on loans in recently issued Majors¹, filtering for loans that were 2019 vintage and at least 6 months seasoned. Below, we plot prepay speeds against refi incentive². In aggregate, fully in-the-money mortgages pay around 55 CPR, with actual speeds varying from pool to pool.


Next, we overlay a TBA S-curve during the 2012-13 refi wave, covering the period both pre– and post–QE3 (September 2012). Traders during that time will remember top speeds in the mid to upper 30s. Clearly the 2019-20 prepay experience has exceeded these speeds for similar refi incentive.


Finally, we compare the current refi environment against the 2002-03 environment—the gold standard for refinancing waves. Traders active during that period will remember this as a time of high cash-out refis, which drove both in– and out-of-the money prepayments higher. Out-of-the-money mortgages paid in the mid-teens as homeowners tapped their homes like an ATM, while in-the-money mortgages paid in the high 60s to low 70s in aggregate, with some sectors paying in the 80s for several months.


The 2002-03 refi wave also featured a surge driven by the “media effect.” With nearly the entire mortgage market in–the–money, a combination of aggressive advertising plus frequent news reporting reminded homeowners at every turn that they could save hundreds of dollars per month if they refinanced their loans. In early 2003, 95% of the mortgage market was 50bp or more in the money, compared with 80% today.

We conclude that with Fed easing and recession fears, 2020 could see a renewed media effect, which may help drive prepayments higher at every point on the S-curve.

If you are interested in seeing variations on this theme, contact us. Using RS Edge, we can examine any loan characteristic and generate a S-curve, aging curve, or time series.

¹ We did a similar analysis on multi-lender Giants. Please contact us for details.

² To be included, the loan had to be at least 6 months old, higher than $225k balance, LTV < 80, and FICO > 700.