Investors in government-backed mortgage bonds are shifting into securities tied to debt from homeowners who are the least willing or able to refinance as the Federal Reserve helps keep interest rates near record lows.

Fannie Mae-guaranteed securities with 5.5% coupons that are backed by 30-year mortgages with average balances of less than $85,000 have jumped to 2.4 cents on the dollar more than similar generic debt, according to FTN Financial. The gap has more than doubled, from 1.1 cents in late July.

Homeowners with smaller loans don't benefit as much from a drop in monthly payments as borrowers with bigger mortgages, while facing similar closing costs, and are thus less likely to refinance. Premiums for debt tied to mortgages with low balances have generally soared to the highest since at least 2004 after refinancing applications climbed to the most in 16 months.

"Prepayment protection is worth a lot more than what you've seen historically," said Bill Bemis, a portfolio manager who oversees about $7 billion of securitized debt at Aviva Investors in Des Moines. "Pay-ups" for mortgage bonds filled with smaller loans "have gone a little bit too far" because it may take investors as long as two years to recoup such premiums through the extra interest payments by borrowers keeping their loans outstanding, he said.

The Fed, which said Monday that it is willing to ease monetary policy further to spur growth, has helped drive down borrowing costs by purchasing government and mortgage bonds.

Mortgage refinancing can hurt bondholders by returning their money more quickly than anticipated.

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