OBSERVATION: Normalcy seems to have returned to prepay speeds...for now. Speeds continue to move within a fairly narrow band: conventional fixed-rate and jumbo speeds remain near their demographic lows, while governments and ARMs maintain their historical pattern of running faster than conventionals. The average coupon of all loans outstanding in this database ($5.7T) is 4.23%, and 84% of all mortgages carry coupons below 6.00%.

However, four dynamics are beginning to emerge:

1. Some borrowers are tiring of holding on to their low-rate mortgages and, due to demographic pressures (new home, job transfer, etc.), are refinancing.
2. Cash-out refis appear to be gaining popularity, with approximately 10% of all new loans falling into this category.
3. One-eighth of outstanding loans are now close to or “in the money” (i.e., ≥ 6.50%).
4. Rates are starting to drop.

The wild card now is whether the Fed will lower short-term rates in September—and, if so, what impact that will have on longer-term rates (i.e., mortgages).

Stay Ahead of the Market: At Level1Analytics®, we track these dynamics in real-time to help institutions make smarter MSR and whole-loan portfolio decisions. Want to know what this means for you?

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