OBSERVATION: Speeds continued to inch up this month, consistent with the small drop in mortgage rates. Speeds remain relatively flat for all coupons below 5%, are up slightly for the 5s, and have increased materially for coupon tranches at or above 6.0%.

The average coupon of all loans outstanding in this database ($5.87) is 4.24%, and 83% of all mortgages carry coupons under 6.00%. However, four dynamics are beginning to emerge:

1. Some borrowers are tiring of holding onto their low-rate mortgages and are succumbing to demographic pressures (new home, job transfer, etc.) to refinance.
2. Cash-out refinances appear to be growing in popularity, with approximately 10% of all new loans falling into this category.
3. 1/6th of outstanding loans are now close to or “in the money” (i.e., ≥ 6.0%).
4. Rates are dropping.

The wild card now is whether the Fed’s easing will continue and, if so, what impact that will have on longer-term rates (i.e., mortgages). Additionally, the data indicates that mortgagors with coupons below 3.0% are not succumbing to demographic pressures and refinancing into higher-cost mortgages. In 2023, 34% of borrowers had mortgages below 3.0%; that percentage remains 34% today. These borrowers are holding onto their once-in-a-lifetime rates and not letting go. It will be interesting to see whether this trend continues.

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