Why is it that the higher coupon rate for an MBS the greater the incentive to prepay?
bc if the balance is outstanding for a longer period of time, the higher coupon will continue to get pmts longer, but if prepays occur, the balance is not outstanding and even premium tranches will not get all the interest
look at it from the perspective of borrower. Would you like to pay 10% on a loan for a longer period of time, if you had the opportunity to refinance and pay say 2% starting tomorrow?