In research this morning (May 20), Bear Stearns examined the historical Fannie Mae/Freddie Mac prepayment relationship. The firm wanted to determine whether the market's price adjustment due to Freddie’s collateral prepaying faster than Fannie is warranted.

In a report released this morning, Bear analysts argue that, although collateral characteristics and geography remain the primary drivers of prepayment rates, there are some differences existing across servicers in brand new pools, particularly for those under 12 months old. To determine whether any systematic differences emerge on this basis between Fannie and Freddie, analysts compared the "refinancing curves" for new pools (zero to 12 months seasoned) to those of slightly seasoned pools (12 to 30 months seasoned) over the last four refinancing cycles.

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