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
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Comments
3 Comments so far
Jennifer Monastero
So now you are the ‘Millionaire Real Estate Lender’? What? America’s #1 Mortgage Broker not big enough for you?
What gives Brady?
In regards to the actual post here, if someone is closing soon, and they like what they see- they should lock. Of course, it does help to have some sort of gauge on what the market is doing, and what we could see in the months ahead. You posted quite a bit on my points/no points blog. And this lends itself to that in a way. Let’s say a borrower today pays no points, and gets a rate of 6.375%. 6 months from now, they are clamoring to refinance (at a cost of thousands) to get the new, low rate of 5.75%. If they pay a point now, and get that rate NOW, they wouldn’t consider refinancing in the future- would they? Seems to me, it would basically be a wash. Off topic, but still- I like to plan ahead.
Tammy
Wow Brady, I thought these blogs were to be informative, not a place to pat yourself on your back. If you were truly America’s #1 Mortgage Broker or a Millionaire Real Estate Lender, shouldn’t you be too busy to partake in these blogs with the ‘little people’?
Unzipped Mortgage Rates Report: September 19, 2008 | Mortgages Unzipped
[...] I warned that MBS traders felt a “stratified debt offering” could be issued, creating “classes” of government debt: Mortgage bond traders are starting to think [...]