Prepayment rates on 30-year fixed-rate agency mortgages fell 23% in January, chiefly as a result of a seasonal slowdown in housing turnover and refinancing activity over the holiday season, according to Bear Stearns & Co.Citing the constant prepayment rate of 5.7 CPR for mortgages in Fannie Mae 4.5% mortgage-backed securities, Bear Stearns analysts Dale Westhoff and V.S. Srinivasan pointed to the extension risk "looming" over the fixed-rate mortgage market. "Even if the housing market remains relatively strong, speeds on deep discount mortgages are likely to converge to their historical norms as cash-out refinancing becomes uneconomical, forcing borrowers to look at 2nd lien mortgages and home equity lines of credit as alternative ways to tap the equity appreciation in their property," the analysts said. For 15-year Fannie Mae and Freddie Mac collateral, speeds decreased by 2.1 CPR overall, compared with a 3.1 CPR overall decline for 30-year mortgages, the Bear Stearns analysts reported. They predicted rising speeds in the February and March reporting periods, citing lower rates so far in February and the four additional business days in March. Bear Stearns can be found online at http://www.bearstearns.com.

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