Refinancings are causing concern among investors in mortgage-backed securities. Many of the factors pointing to higher prepayments are already in place, and some observers are speculating that prepayments could match those of 1993's refinancing boom.

"We're going to have very volatile prepayments," said Paul C. Wang, senior vice president for fixed-income research at Prudential Securities. "It's very likely that we're going to hit a 25-year low in mortgage rates," he added.

Sustained low rates point toward higher prepayments. The only ingredient missing is a steep yield curve, Mr. Wang said. Volatility is not welcome news for either investors or issuers of mortgage-backed securities because the costs of origination rise with the uncertainty, Mr. Wang said.

Investors, dealers, and mortgage servicers that are not hedged also may be hurt by higher prepayments, said Richard L. Harmon, managing director of Risk Monitors, a risk management consulting firm in White Plains, N.Y. Smaller mortgage companies that have been operating with the outlook that interest rates would go up may also be hurt, he added.

People are wondering whether mortgage-backed securities will perform better than Treasuries, but "right now, the whole mortgage market is over par," said Stephen Smart-O'Connor, managing analyst of mortgage data at Technical Data in Boston.

"This is a very dangerous situation for mortgages because they prepay at par," he said. "I would rather not bet on them but bet against them right now," Mr. Smart-O'Connor said, but this stance is offset by the agency purchasing activity prevalent during the first part of the year.

"The intensity of refinancing in 1992 to 1993 was almost five times as intense as in 1997," said Mr. Wang of Prudential Securities.

The yield curve is still flat and does not resemble the steep yield curve of 1993. The flat curve cuts down on refinancing opportunities.

To understand the impact of prepayments on mortgage-backed securities, it helps to divide mortgages into two groups: 1993 and earlier, and 1994 until the present. Mortgages from 1993 and earlier were exposed to low rates and multiple refinancing waves.

But the 1994-and-later loans that had not experienced these rates "will be potentially much more sensitive to this particular rate drop," and more sensitive to refinancing activity, said Mr. Harmon of Risk Monitors.

Mr. Smart-O'Connor said, "Unless the economy weakens dramatically, the Fed is not going to ease. And that means the curve is going to remain relatively flat."

"I think you're going to see prepayment estimates continue to rise over the next few weeks," he said. "It's going to be the strongest refinance peak since 1993," he added. But the issue of whether it will go higher than in 1993 is unresolved. "If the curve gets steeper, you could have a refinance wave akin to 1993," he said.

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