NEW YORK - With the ARM sector and Asian investor interest increasing significantly, the MBS landscape is changing compared to how it was just a few years back. MBS market participants at the Bond Market Association's annual meeting held here last week discussed how they are dealing with these changes and highlighted their views on current mortgage valuations and housing sector trends.

Bear Stearns Senior Managing Director Dale Westhoff said that the mortgage market is currently transitioning into a purchase environment after being dominated by refinancings in recent years, noting that there is increased market uncertainty in a rising interest rate environment as prepayment models have been calibrated for a lower-rate scenario, or to reflect the 2000 experience. He also noted that the housing market, which he believes has peaked, is now facing a "perfect storm" scenario, adding that he expects a prepayment speed compression on a relative coupon basis going forward.

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