Even with quantitative easing in place, the extent to which borrowers respond to a given rate incentive may have peaked in the most recent prepayment report, according to researchers.

"For a given rate incentive, borrowers have maxed out on their response," Mahesh Swaminathan, director, head of residential mortgage-backed securities strategy at Credit Suisse told ASR's sister publication National Mortgage News. "If we rally, there will be a little bit more, but it will be incremental and small as opposed to some large moves."

He said quantitative easing could reduce rates by as much as 1/8 to 1/4 point. Some borrowers with rates around 4.5% to 5% -- who currently represent about 25% to 30% of outstanding borrowers -- could respond if rates drop as low as 4% and they meet the market's tight underwriting standards.

But he said that response would still be pretty modest in the context of the overall market.

Barclays Capital also noted in its most recent prepayment report that there has been a diminishing refinancing response to rates and a big refinancing wave is increasingly unlikely.

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