Though the July prepayment report released last week showed never-before-seen speeds in even the lowest MBS coupons, the interest rate environment has changed substantially since then, and prepayment activity should follow suit, analysts said.

"We are transitioning to a completely different environment where the average borrower, after several years of having a very strong refinancing incentive, now has a very weak incentive at best," said Dale Westhoff, senior managing director at Bear Stearns. "We are going to transition quickly to a much more stable, housing turnover driven prepayment environment."

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