With the 6% coupon trading near par, the MBS market is finally seeing substantial production in this coupon from originators. Many analysts attribute the rise not only to higher mortgage rates, but also to the fact that too much excess servicing is influencing originators to create low weighted average coupon 6s instead of high weighted average coupon 5.5s.

Amin Majidi, head of mortgage research at Deutsche Bank Securities, reports that with rates backing up, 6s have finally become a production coupon. Currently, the primary mortgage rate used in Deutsche's model is roughly 6.37%, although rates have actually reached 6.50%, making 6s the current TBA coupon. Majidi added that the higher average loan size by January - based on the changing conforming price limits expected to rise over $410,000 from $359,650 currently - should also result in a fraction of the jumbo mortgages originated in recent months to become agency TBA delivery eligible. In general, the average loan size on low WALA 30-year conventional 5.5s should be a good proxy for where new 6s are headed.

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