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Callable Step-Up: The Return of a Poor Risk/Reward Revisited

September 14, 2010
Kurt Fritz

Callable step-ups. Callable step-ups. Callable step-ups. They just keep on coming. It’s like a bad dream that I can’t forget. In fact, this will be my fourth article dedicated to one of my least favorite sectors—the callable step-up. I wrote the first article on this poor risk/reward in 1998 and revisited it in 2003. Then in May of 2009 I wrote an article entitled, “The Return of a Poor Risk/Reward,” which highlighted the shortcomings of callable step-ups. I’m going to pile on again today.

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Premium MBS and Stimulus Prepayment Risk: Should Investors Now Shun Premiums?

September 1, 2010
Philip Nussbaum

Premium coupon mortgage-backed securities and CMOs (collectively, premium MBS) have performed very well over the past several years as prepayments have been lower to much lower than expected due to the struggling economy and credit impaired homeowners’ inability to refinance to the prevailing lower interest rates. Much of the prepayment that is taking place is actually involuntary, that is, it is due to home foreclosures and liquidations and not voluntary refinancing.

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