As 2011 MBS outlooks were being formulated, mortgage rate levels were much lower. This lead to expectations of increased paydowns from the Federal Reserve, theU.S Treasury and the GSEs as a result of the elevated prepayment speeds.

However, some interesting events occurred during 1Q11 to adjust the prepayment and supply landscape. These include such factors as mortgage rates reaching in mid-February their highest level in 10 months, higher loan fees, extension of the Home Affordable Refinance Program (HARP) and the Treasury announcement that it would immediately begin unwinding its agency MBS holdings.

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