If you haven't read the primer on why MBS prices can suddenly tank, even when Treasuries aren't tanking, here it is.  Definitely read it once so you know what's going on when you see spikes in MBS prices that aren't accompanied by similar spikes in Treasuries.

The current situation is tricky because MBS illiquidity is indeed distorting price losses in MBS, but Treasuries are also breaking toward higher yields.  If MBS were following Treasuries in their typical fashion, the MBS losses wouldn't be quite as steep, but they'd still be steep enough for the more aggressive lenders to begin to consider negative reprices.

Fannie 3.5s are down 3 ticks or 5 ticks on the day, depending on which microsecond you happen to be viewing.  This is between 6 and 8/32nds from the highs of the day.  The 6/32nds of weakness is more realistic, but still enough for reprice risk.  10yr yields are now up half a bp to 2.226, their domestic session highs.