In Brief: Mortgage Securities Lag Treasuries Amid Prospect of a Rise in

Mortgage securities prices rose less than those of Treasury notes last week amid concern that falling yields will prompt lenders to drop their home loan rates, making it worthwhile for more homeowners to refinance.

The average 30-year mortgage rate was 7.53%, unchanged from the week before, according to Freddie Mac. Some mortgage investors are concerned that rate could drop in the weeks ahead if Treasury yields keep falling, as they did Friday.

"Anytime Treasury rates rally it brings more people into the refinance area," said Patrick Feldman, who manages $4.3 billion of adjustable-rate bonds at Thornburg Mortgage Asset Corp. in Santa Fe, N.M. "Prepayments aren't a huge concern, but they are a concern."

Falling interest rates could also be bad news for investors in adjustable-rate mortgage bonds, whose payments rise and fall with interest rates. Some real estate investment trusts that invest in ARMs are scaling back their purchases of these securities.

Mill Valley, Calif.-based Redwood Trust Inc. said that it has stopped buying most types of mortgage securities because prices are too high. The company is also considering selling some of its securities to take advantage of the high prices, according to a release.

Thornburg Mortgage is also buying less, though any dips should be short- term, said president Larry Goldstone. "We continue to find an adequate amount of adjustable-rate mortgage product suitable for our portfolio," he said. "It's likely to be a fairly decent quarter."