Flat home price appreciation is expected to start in 2006 and prepayment speeds are going to reflect this deceleration in 2007, analysts said. However, repricing of turnover expectations should be immediate.

Lehman Brothers estimates that discount prepayments - 50% out of the money - in a flat housing environment to be roughly 6% CPR at 30 WALA and 8% CPR at 60 WALA. Analysts were able to come to these figures through extrapolating from recent prepays from areas that have different house price appreciation and through using 1994 backup data, when appreciation in California was negative.

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