MBS backed by Alt-A mortgages can offer an attractive alternative to regular conforming or jumbo mortgages, said a report by Nomura Securities International named A Journey to the Alt-A Zone. It is a situation "where credit risk and prepayment risk combine in a special way," said report author Mark Adelson.

The report said that compared to regular mortgage loans, Alt-A mortgages are less prepayment-sensitive in the first nine to 12 months after origination, especially in a low- interest rate environment. Previously, Alt-A mortgages even offered greater prepayment advantage, but as the primary mortgage market becomes more efficient and GSEs make inroads into the sector, this advantage has decreased somewhat.

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