As interest rates rise and cash-out refinance volumes drop significantly, discount speeds will be the first to be suppressed, researchers noted.

Credit Suisse First Boston analysts expect annualized cash-out volume to drop to $135 billion, the lowest levels since 2000, should mortgage rates rise to 6.90%. Freddie Mac estimates there will be an additional $40 billion in home equity extraction over this quarter, reaching $204 billion for 2005, the second highest year on record after $225 billion of cash-out activity in 2002. However, 2006 equity extraction will probably be cut in half to $114 billion, Freddie Mac estimates.

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