Puddles and Pools

Today’s Wiki Wednesday Feature: Puddles and Pools

I spend a lot of time in the Real Estate Guide, editing content, organizing content, and “redirecting” spam when I see it. Lots of similarly-themed titles flow one after another, involving mortgages, title insurance, buying homes, selling homes, staging– you name it. However, one headline that popped out at me amid the usual subjects was: Puddles and Pools. Puddles? Pools? How do puddles and pools go together? The imagery was driving me nuts, especially since I kept thinking of a puddle of water on my kitchen floor or a pool of water in my basement!

I soon discovered that Puddles and Pools had nothing to do with H2O, but was a creatively-written article by Mike Mueller of Patagonia Finance (Concord, CA) about how mortgage rates are determined. For my very limited mathematical brain, it made total sense: “Pools” represents trillions of dollars of mortgage money that moves slowly and steadily through the biz by the giants of the industry (Fannie Mae, Freddie Mac and Ginnie Mae), while “puddles” represents smaller amounts of money — although perhaps millions or billions of dollars — that is controlled by large insurance companies, investment funds and pension funds. For each of these areas, the money needs to keep moving and is the source in serving both conventional loans and jumbo loans.

This is only part of the article, which explains what makes mortgage rates go up and down. Other factors include mortgage-backed securities and supply and demand. So when you wonder what drives mortgage rates up and down, think about puddles and pools of money and the image that water needs to keep moving.

Ed: Wiki Wednesdays is a weekly feature that highlights helpful or interesting articles from the Real Estate Guide.