Prepayments on mortgages are probably near their peak, but mortgage analysts are divided on when prepayments will actually begin to decline.
Mortgage prepayments are caused by home resales and refinancing by consumers. The drop in mortgage rates generated a refinancing boom, but that boom is widely expected to end soon. Higher prepayments hurt investors who bought mortgage-backed securities at a premium, because the underlying debt is repaid ahead of schedule.
Last week, the Mortgage Bankers Association said its refinancing application index dropped to 341.5 in the week ended April 24, from 361.2 in the previous week.