February 27, 2015

By Bob Judge
Editor, CPR Report

In December, prepays fell back below 7% for the first time since July, decreasing 27% from November.

As to the cause, we witnessed double-digit decreases in both defaults and voluntary prepayments.

Defaults fell by 26%, pushing the sub-2% readings to a record 16 months in a row. Historically, this reading was the 3rd lowest since 1999.

As for voluntary prepayments, they fell below 6% for the first time since August, decreasing 27% from November.

As for the detail, overall prepayments fell by 27% to 6.56% from 8.96% in November.

In comparing prepaymentspeeds for all of 2014 to all of 2013, we see that 2014 came in 7.89% higher, CPR 7.67% versus CPR 7.11%.

As for the largest sector of the market, 20+ years to maturity, prepayment speeds fell by 28% to 6.27% from 8.69%.

Turning to the CPR breakdown, the default CPR decreased by 25% to 1.19% while the voluntary prepayment CPR fell by 27% to 5.36%.

Preliminary data for next month suggests that prepayments will rise back above 8% as we enter 2015.

Turning to our maturity buckets, prepayment speeds fell in four out of six categories.

Decreases were seen, by order of magnitude, in the 16-20 year sector (-74% to CPR 2.59%), 8-10 (-46% to 6.85%), 20+ (-28% to CPR 6.27%) and 10-13 (-23% to CPR 6.94%).

Increases were seen, also by order of magnitude, in <8 (+65% to CPR 16.47%) and 13 -16 (+51% to CPR 12.61%). With 2014 in the books, we have completed our third year in a row of increasing prepayment speeds since the all-time low year of 2011. I would expect another single-digit increase in 2015 as CPRs move back toward their long run average.