Despite the Federal Reserve's effort to push down mortgage rates through MBS purchases, the spread between primary and secondary mortgage rates has remained stubbornly wide, according to Merrill Lynch analysts in a recent report.

While the higher g-fees from the GSEs and increased servicing costs resulting from delinquencies have contributed to the wider spread over the past year, Merrill Lynch analysts said. They also added that most recently, other factors such as cost of hedging the pipeline, points paid by the borrower as well as originator capacity constraints are reasons why the spread has widened even further.

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