Perhaps the biggest issue facing the mortgage-backed security market in 1993 was the surge in prepayments spurred by the large volume of refis. Those prepayments resulted in many investors writing off large losses - including some nationwide municipalities that bought interest-only strips. Most of these investors simply didn't understand the complexities of their investments.

The trend has given the mortgage securities market something of a black eye, and new chairman of the Public Securities Association Mortgage-Backed Securities Division, Nathan Kornfeld, who has 15 years of investment banking under his belt, plans to counter that by educating investors about those risks in 1994.

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