Unzipped Mortgage Rates Report: September 17, 2008
Remember when I talked about the whipsaw effect, yesterday? Rates with no lender compensation to the broker, called “par” rates in the industry *, are 5.875% now. That’s .375% higher than the 5.5% I reported yesterday.
Will mortgage rates come back down?
Maybe. They SHOULD since they are backed by the full faith and credit of the US Treasury. They SHOULD start behaving like the 10-year treasury bond yield, which is down .06% in yield today. They SHOULD be at the 5.5% mark….but they’re not.
The mortgage default crisis spread to the world’s largest insurance company, prompting yet another government bailout. Mortgage bond traders are starting to think that the US Treasury is going to have to start offering classes of debt, to deal with the crisis. Stratification of debt, like the old Resolution Trust Corporation bonds, will most likely take us back to where mortgage-backed securities trade at a wide premium to Treasury debt. This isn’t happening but mortgage bond traders are speculating that it might. If it does, then the demand for a 30 year mortgage, loaned to you, the American borrower, is not as high as a direct obligation of the US government.
What we seek to discover is how IRRATIONAL this fear, conjecture, and speculation is. While it doesn’t seem rational, it isn’t quite irrational at these price levels. If the 10-year treasury bond stays under 3.5% yield, and the mortgage bonds sell-off pushes mortgage rates up over 6.0%, then I think the fear isirrational and will change my recommendation- I’m still suggesting that you lock your mortgage rate at application.
* A par rate is where the originating mortgage broker does not receive any yield spread premium from the lender. Borrowers can negotiate a fee for the mortgage broker to give you access to “par rates”, which are typically lower than the “retail” rates banks offer.
Originally posted on Millionaire Real Estate Lender