The sharp rate backup has changed the mortgage market from one in which almost all mortgages were refinanceable to one in which fewer than half are refinanceable. In this scenario, investors are asking how slow can speeds get if rates hold.

According to Bear Stearns, the record origination volumes will ultimately not delay any slowing in speeds as originators try to clear their extensive pipelines. In a report, the bank said most of the declines would happen in the next three months, as capacity issues have increased the lag between application and prepayments only by several weeks. This is why originators should clear any backlog in their pipelines relatively quickly, Bear said, with prepayments reflecting this even during the next three months.

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