Prepayments on 30-year fixed-rate mortgages in agency mortgage-backed securities fell 5% in November, reflecting a seasonal slowdown in housing turnover as well as the short Thanksgiving week, according to Bear, Stearns & Co.MBS backed by 30-year Fannie Mae collateral recorded an overall constant prepayment rate of 10.9 CPR for the month, down 0.8 CPR from that of October, senior managing directors Dale Westhoff and V.S. Srinivasan reported. Meanwhile, comparable Freddie Mac collateral recorded an overall speed of 10.3 CPR, down 0.3 CPR from that of October. The latest speeds "support our current thesis that today's prepayment environment has important parallels to 1996," the Bear Stearns analysts said. A 200-basis-point rally in mortgage rates in 1996, following the massive 1993 refinancing wave, produced "a notably muted refinancing response that stands out from all other refinancing events," the analysts said. The current situation also involves a significant weakening of the housing market and follows a massive refi wave in 2003. "The recent rally has exposed predominantly newly originated mortgages backing 6.0% and 6.5% coupons," the Bear Stearns analysts said. "These borrowers have seen little or no home price appreciation, reducing the cash-out incentive that has been such a critical component to the prepayment response in recent years." Bear Stearns can be found online at http://www.bearstearns.com.

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