ap0258

you are correct, if MBS prices are going down then interest rates are increasing. if interest rates fall then MBS prices will increase, just not as fast as noncallables.
From the information on the question it sounds like it is poorly worded. If MBS values are going down, theoretically you could be at any point on the curve, the only thind that has to happen is interest rates increase. if you are on the lower end of the curve, the MBS value would go down slowly, and if you are in the middle of the curve it would go down faster.
The lower end of the curve is where contingent claim risk is more present for MBS’s and Int rate risk is more present in the middle of the curve. so the answer really depends on where in the curve you are.