Sept 9 (Reuters) - The growth in prepayments on U.S. mortgage bonds slowed in August, scaling back from the previous month’s surge in refinancing as a result of a dramatic drop in home borrowing costs, according to estimates from J.P. Morgan published late on Friday.
Prepayments on 30-year mortgage-backed securities backed by Fannie Mae on average rose 5% in August, cooling from a 29% jump in July, J.P. Morgan analysts said.
Faster-than-expected prepayments hurt the value of mortgage-backed securities as investors are repaid more quickly than they previously planned and redeploy their money into lower-yielding MBS.
“For mortgage investors, the (August) print should be somewhat reassuring as it showed for the time being, capacity constraints are still in place and application volume reported by refi index is till a reasonable predictor of demand,” J.P. Morgan analysts said in a research note late on Friday.
The slower prepayment speeds in August may be short-lived as lenders seek to ratchet up their businesses in anticipation of a pickup in refinancing with 30-year mortgage rates hitting their lowest levels since the autumn of 2016, they said.
Last week, interest rates on 30-year, fixed-rate mortgages which are the most widely held in the United States, averaged 3.49%, their lowest since October 2016, Freddie Mac said.
The Mortgage Bankers Association said its seasonally adjusted index on refinancing fell 7% in the week ended Aug. 30 but was 152% higher than a year ago. In early August, it hit a three-year peak. (Reporting by Richard Leong; Editing by Steve Orlofsky)