As home price appreciation prompts borrowers to tap the equity in their homes, researchers are looking at the impact on prepayments, now that rates may no longer be the primary incentive. MBS analysts from both Countrywide Securities and UBS delved into this issue last week, with very different perspectives. Meanwhile, Freddie Mac stated in its First Quarter 2004 Refinance Review that cashout refinancings were steady over the quarter (see related story on p. 16).

In a recent report, Countrywide examined recent cashout behavior and its impact on at-the-money prepayment speeds. In particular, the firm examined whether cashout refinancings can keep fixed-rate prepayment speeds at current historically fast levels, attributable largely to the rise in home prices in the last couple of years.

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