Historical Prepayments Compared To Prevailing Interest Rates

The above chart, comes from the Q1 2012 Market Commentary from Annaly Capital Management, the largest publicly traded mortgage REIT (mREIT).

According to the commentary This chart:

"illustrates historical prepayment speeds on mortgages with 100 basis points of rate incentive. The time series adds 100 bps to the 30-year Fannie Mae Current Coupon (which represents where current mortgages are being originated) and looks at the prepayment rate for mortgages at that rate level. For example, in March 2012 the current coupon was approximately 3%, and the prepayment speed on 4% mortgages was 22.1%. In contrast, in July 2003 the current coupon was approximately 6% and the prepayment speed on 7% coupons was 67.1%. What should be obvious from Chart 3 is that interest rates have never been lower and speeds on collateral with substantial rate incentive have rarely been slower, certainly prior to the credit crisis."