Street consensus estimates show prepayment speeds slowing 7% to 8% in October. The limited decline is due to relatively stable refinancing activity resulting from lower mortgage rates, partially offsetting the lower day count - 20 days versus 21 days in September. Mortgage rates averaged 5.77% in September, versus 5.82% in August. Refinancing activity, meanwhile, was down just slightly, averaging 2192 in September versus 2264 in August. Looking ahead, November speeds are anticipated to slow roughly 8% with December slowing an additional 5% to 6%.

Despite the slowing, speeds on discounts should remain faster versus historical comparisons. In a recent report from Credit Suisse First Boston, analysts stated that cash-out refinancings will likely prop up discount speeds. Researchers note that in April 2005 and June 2004, when refinancing exposure was similar to today, the Mortgage Bankers Association Refinance Index stood at 1799 and 1455, respectively. The Refinance Index has yet to fall below 2000 despite the increase in the no-point 30-year fixed rate mortgage rate to over 6% for the past four weeks.

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