Deborah Estridge Press Release 1

As a follow-up to our research report last week, we note that the benchmark spread between the prime non-agency jumbo rate and the agency conforming rate (i.e. the non-agency basis) has gapped to its widest level in the history of the securitized mortgage market. As the Figure below illustrates, in a period of just four weeks this spread has increased from its normal range of 20 basis points to nearly 80 basis points- far exceeding all prior periods of non-agency spread widening.

This sharp move in the basis provides clear evidence that mortgage credit is tightening well beyond the subprime sector. It is important to note that heightened credit fears and severely diminished liquidity have been the key drivers behind this dramatic move in spreads. There has been no fundamental deterioration in prime mortgage credit performance to justify a move of this magnitude.

Although liquidity pressures are likely to persist in the near future, the widening in the non-agency basis presents mortgage investors with a historic opportunity to add AAA mortgage assets backed by prime non-agency borrowers at all-time attractive levels.