Agency MBS issued by Fannie Mae, Freddie Mac and Ginnie Mae remove credit risk and leave interest rate risk of an unusual shape. The homeowner holds a free option to refinance at any time, so the investor is short that option and the cash flow schedule is not fixed.
This makes MBS the largest naturally negative-convexity asset class in the world, which is why mortgage hedging flows can amplify moves in Treasury yields: as rates rise, expected prepayments fall, duration extends, and hedgers must sell duration into an already falling market.
Example: a 30-year 5.5% coupon pool has an expected average life of 7 years at current rates. Rates fall 100 basis points, refinancing accelerates, average life shortens to 3 years, and the price gains far less than a 7-year bullet would have.
Related: prepayment-risk, extension-risk, negative-convexity, option-adjusted-spread, tba-market