Initial data from 2003 suggests that the refinancing ramp is shortening to more historical norms. The ramp is reverting back to the nine-month range from roughly 15 months in the past year, concluded a recent Bear Stearns report.

In a previous report released in January, analysts examined the lengthening of the refinancing ramp seen in the 4Q02 prepayment speeds. The change was attributed to the increased processing time related to lenders running at capacity and borrowers postponing refinancing due to expectations of lower future rates.

One probable reason is that mortgage brokers have captured about 60% of today's refinancing market share. While the number seems high, it is evident that brokers handle a very considerable share of the refinancing business in this country. The key element is that brokers become much more efficient in a "repeat" refinancing scenario like today, said analysts. They explained that a repeat refinance represents the lowest hanging fruit for most mortgage brokers. This involves documentation being fresh and having a pre-existing relationship with the borrower that can be exploited.

The significant revenues made by some brokers have been based on their ability to process the maximum number of loans in the shortest possible time. The repeat refinance transaction is likely at the heart of the recent "broker bonanza" and has contributed significantly to the shortening of the refinancing ramp in 2003. The value implications of a much shorter ramp are profound.

"The obvious elasticity of the ramp is one reason we have never been big fans of the low

WALA MBS story even though the trade worked well for investors in 2002," wrote analysts at the firm. Going forward, they suggested for investors to limit the WALA trade to only those bonds that still look attractive under a conservative six-month refinancing

ramp assumption. Longer term, programs like ABN AMRO's OneFee refinancing transaction will likely become more common in the mortgage market. Programs like this would drive costs down, keeping refinancing thresholds low and ramps short.

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