As has been noted by many analysts, borrowers have been much less responsive to the level of rates recently. In a recent analysis, Bear Stearns researchers quantify the relative attractiveness of current mortgage rates by creating a Rate Desirability Index (RDI). The Index measures the amount of time rates have been higher than current levels over the past three years.
Bear states this index provides a snapshot of how motivated borrowers are likely to be at various rate levels. It is currently at 85, which means that over the past three years, rates have been higher 85% of the time. Given that percentage, it is surprising that prepayments haven't picked up more. In fact, the prepayment responsiveness is less than mid-summer when mortgage rates hit 6.35% and the RDI was between 40 and 50, analysts say.