Amherst Securities is advising investors to be overweight on MBS, telling them that prepayment speeds are not really a factor – despite ultra low mortgage rates.

In a new research report, Amherst asked, "Why are [prepayment] speeds so slow?" and then answers the question by saying consumers hoping to refinance cannot "cash out" enough to pay for the closing expenses.

"Negative equity borrowers can't/don't want to write a check to cover expenses," wrote Amherst analyst Laurie Goodman.

The analytics firm notes that foreign investors have been gobbling up MBS since March, even though they were net sellers between July 2008 and Feb. 2009, unloading $166 billion of product.  

Amherst is telling clients to be overweight in MBS, but not in TBA securities. "Look for prepayment-protected collateral in passthrough and structured form."

It also notes that the non-agency MBS market is contracting rapidly.

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