Answer: Sharp changes in housing prices

**Sharp changes in housing prices** (Option B) contribute to increased prepayments in MBS: - **Sharp price increases**: Homeowners may refinance to take advantage of equity gains or sell properties - **Sharp price decreases**: Can trigger defaults and forced sales - **Stagnation in housing prices** (A): Typically reduces prepayment activity as homeowners have less incentive to move or refinance - **Increasing interest rates** (C): Generally reduces prepayments as refinancing becomes less attractive - **Approaching original distribution day** (D): Not a recognized factor affecting prepayment behavior Prepayment risk in MBS is primarily driven by interest rate changes (refinancing activity) and housing market conditions.

Author: LeetQuiz Editorial Team