Prepayment rates for Fannie Mae and Freddie Mac mortgage-backed securities plunged among major coupons during the May reporting period, according to the Bear Stearns Prepayment Commentary.The constant prepayment rates of Fannie Mae 5.5% coupons fell the most in absolute terms, by as much as 15 CPR, Bear Stearns analysts Dale Westhoff and Bruce Kramer reported. The analysts said the speeds of "moderately seasoned" 5.5s are likely to continue slowing and may drop as much as another 20 CPR by the fall. They also said the slowdown points to important differences in the behavior of agency MBS speeds compared with those of last year. "Clearly, there will be no repeat of last summer's protracted refinancing event that resulted from mortgage pipeline delays," Mr. Westhoff and Mr. Kramer said. Forecasting convergence in agency prepayments, the analysts said the MBS market's refinancing exposure is "the weakest it has been since the fourth quarter of 2000, with less than 25% of the borrower universe having any incentive to refinance at all." Bear Stearns can be found online at http://www.bearstearns.com.

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