I didn't see this discussed in Matt's MBS basics so I thought I might point out to anyone that might be interested that when looking at MBS pricing the rates quoted are the pass-through coupon rate. The interest rate of the coupon is adjusted to a yield that is 1/2 percent lower than the underlying loans that comprise the security. So when you look at the 4.5 coupons they represent 5.0% loans on a lender's rate sheet.

Great info...I wish I could chat more during the week on MBS Live to know these details...I was always assuming that for any particular coupon, say 4.5, that lenders rate sheets would reflect 4.75...

Interesting, thanks for posting Harlan.  Question for anyone - I have read here on the site that lenders are looking for spreads of approximately 16-24 ticks.  Assuming that's the case, does it stand to reason that the 4.5% coupon trading at 101-16 should translate to 5% at 101 on lenders rates sheets? (in a more "normal" pricing environment)

Thanks in advance for any response.