[yold__]

So here is my super simple understanding take on the long-winded article.

If the duration of treasuries, or whatever you are basing the spread on, is equal to MBSs, the spread would be constant. This is not the case because of prepayments (i.e. the option).

When interest rates rise, refinancing-related prepayments slow. Duration increases. But, it's a hot housing market, so there is an offsetting effect. Duration is decreasing due to the housing market (buyer-driven prepayment).

The option-adjusted spread would capture both these effects, but good luck with that.