Suppose the pool of passthroughs used as a collateral for a CMO is selling at a premium. Why a slowdown in prepayment will tend to increase the value of the collateral?
If it’s selling at a premium that means the coupon earned is higher than current rates, if prepayments slow down, then the CMO will pay off slower, so you will earn that high coupon for longer, increasing the value of that cash flow stream (e.g. i would rather earn $10 per year for 5 years than 4 years).