January Prepayment Speeds Decline as Mortgage Rates Remain Elevated

The January prepayment speed report, based on February 2025 data, revealed a notable 14 percent decline in aggregate Fannie Mae 30-year mortgage prepayment speeds compared to the previous month. The 1-month Conditional Prepayment Rate (CPR) dropped from 5.9 to 5.1, marking the slowest pace since March. This slowdown coincides with persistently high mortgage rates, as the Optimal Blue 30-year conventional mortgage lending rate ended the month at 6.84 percent, hovering near its highest level since July. The excitement surrounding the October surge in prepayments now appears distant, as the overall landscape remains stagnant. Investors continue to monitor servicer performance closely, as prepayment speeds are a critical factor in mortgage-backed securities (MBS) valuations and total returns.  

Examining the UMBS 30-year sector, the spread between the fastest and slowest servicers remains relatively narrow, though it has tightened further compared to prior reports. For instance, in the 1.5 percent coupon category, the differential between the fastest (Wells Fargo) and slowest (CMG Mortgage) servicers stood at 2.4 CPR, lower than the 3.3 observed in December and nearly half the 4.4 reported in July. This compression suggests that servicers are concentrating their efforts on borrowers with loans in the money for refinancing rather than those further out of the money. Among major servicers, Rocket/Quicken maintained its dominance as the fastest servicer for the fifth consecutive month, ranking in the top five across nine of the twelve 30-year coupons. loanDepot followed with five top-five placements, while Fifth Third secured four. On the slower end, Planet and United Shore frequently lagged, appearing in the bottom five servicers across five of the twelve coupon categories.  

Shifting focus to the UMBS 15-year universe, Rocket/Quicken continued to stand out as one of the fastest servicers, ranking among the top five in eight of the eleven coupons analyzed. This trend reinforces Rocket/Quicken’s reputation as a key servicer for investors seeking higher total returns through faster-than-expected prepayments. Unlike the 30-year sector, where multiple servicers were in contention, Rocket/Quicken dominated the 15-year space without a close competitor. Meanwhile, on the slower end, Lakeview and PennyMac were the most frequently underperforming servicers, ranking in the bottom five for five of the ten coupons. Due to limited servicers with significant holdings in the 15-year segment, the dataset is somewhat constrained, but the trends still provide meaningful insights for investors evaluating prepayment risk.  

Overall, the prepayment environment remains subdued, reflecting the impact of higher mortgage rates on borrower refinancing behavior. The narrowing CPR spread across servicers indicates a growing focus on loans with stronger refinancing potential, while discount MBS investors looking to optimize returns must remain vigilant in tracking servicer performance. The market remains in a state of uncertainty, as rate movements will continue to dictate refinancing activity and prepayment speeds. For now, investors should carefully consider servicer selection and loan characteristics when assessing potential MBS investments, as these factors could significantly influence returns in the months ahead.