These MIAC Indexes represents the MSR price behavior of the entire 30-Year Conventional Agency MSR and 30-Year Jumbo MSR market and particular components within the marketplace have increased or declined to a greater or lesser extent. These Indexes DO NOT represent multiples indicative of the value of new production, current coupon servicing rights.

MSR Product Type Price Indexes:

Key Interest rates ____________________________________________________________________________

 

In January, the treasury and swap curves continued their downward trend have flattened further. Both the 5 Year Swap-Libor and 10 Year Swap-Libor spreads declined by nearly 10 bps. The spreads between the 5 Year and 2 Year Note also narrowed by 16 bps. On the same lines, the FNMA Mortgage-Swap spread and the GNMA Mortgage-Swap spread also decreased. The FNMA Mortgage-Swap spread and the GNMA Mortgage-Swap spread have widened further by nearly 8 bps.

MSR OASs Tighten
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MIAC Analytics makes available Daily GSA OASs through the Daily GSA Pricing Service. Each day, MIAC Analytics will use the previous day’s current volatility of 1-Year into 10-Year swaption volatility as a proxy for mortgage volatility.

The graph below illustrates the OASs computed in MIAC Analytics from the actual GSA prices for nine of the largest GSAs: Conventional 15-Year 5.0% Issue Year 2002, Conventional 15-Year 5.0% Issue Year 2003, Conventional 15-Year 5.5% Issue Year 2002, Conventional 30-Year 5.0% Issue Year 2005, Conventional 30-Year 5.0% Issue Year 2003, Conventional 15-Year 4.5% Issue Year 2005, Conventional 30-Year 5.5% Issue Year 2003, Conventional 30-year 6.0% Issue Year 2002, Conventional 30-year 6.0% Issue Year 2003, GNMA 30-Year 5.5% Issue Year 2003, and GNMA 30-Year 6.0% Issue Year 2002. The graph displays the monthly OASs from 6/1/2005 to 1/31/2006.

GSA OASs followed a tightening trend through the month of December, but since then have appeared to stay within a certain range. In January, the OASs for these benchmark assets tightened across the majority of asset classes.

Servicing.com has provided daily IO/PO pricing on a portfolio of Trust IOs for several years. As a result, we can provide a comparison of historical Trust IO OASs with the same interest rate model, volatility inputs and OAS cash flow model as the historical GSA OASs. One can see from the table above that Trust IO OASs don’t appear to be well correlated to OAS behavior of the GSAs. This behavior does not support the use of Trust IO OASs as benchmark OASs for the MSR marketplace.

In the table above, the OAS durations or measurements of the anticipated MSR price sensitivity
were computed with a constant OAS.

MSR convexities have continued moving further into their typical negative territory for most Generic Servicing Assets, as rates persistently climb. When convexity is positive, MSR prices will increase more for an upward rate shift than they will decrease for a downward rate shift. When convexity is negative, MSR prices will decrease more for a downward rate shift than they will increase for an upward rate shift.

 

BMA Prepay Speeds Retrace
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The following tables reflect BMA historical dealer median prepayment forecasts.

After a noticeable pick-up in BMA dealer consensus prepayment speeds observed in the month of August, speeds have generally slowed down a little bit through the month of September, and are still well below their historical highs. The speeds for the 2004 Issue Year asset classes hit their peak levels in August, but have mostly declined since then.

On 8/15/2005 the Bond Market Association released a revised listing of mortgage assets and their prepayment speeds to reflect the current mortgage market at the time. These new asset classes do not have historical speeds prior to that date.

MedianPSAForecast
Red Indicates the highest forecasts on record and yellow the second highest.