Mortgage bond analysts predict refinancing surge | Bedford Corners NY Real Estate

The rate at which pool of mortgages tend to refinance is expected to reverse recent declines, according to mortgage bond analysts.

This prepayment rate forecast, “may surprise to the downside,” according to Sarah Hu and Ashley Gam, MBS strategists at the Royal Bank of Scotland.

“We expect April prepayments to increase by 3-5% based on faster housing turnover, stronger seasonality (+ 15%) and an increased day-count (+ 5%),” they write in a note to clients. Hu and Gam added that Bank of America  ($11.97 0.03%) and Citibank ($43.01 0.24%) mortgage pools are prepaying at a faster rate than JPMorgan Chase ($47.91 0.42%) and Wells Fargo [stock WFC][/stock].

Charles Tu, vice president of U.S. fixed income at TCW, said recent prepayment rate results came in close to expectations. 

“Forecasts called for a 12% decrease in prepays month-over-month, and the results were more or less in line with forecasts,” he said.

Fannie Mae-Bank of America pools show the most notable slowdown in mortgage refinancings at higher interest rates.

Indeed, higher coupon speeds are declining which may be reflective of what’s known in the bond market as “HARP burnout.”

According to RBS, recent declines in refinancings also occurred at lower coupons, especially if originated in the last two years, though to a lesser degree