Archive for the ‘Mortgage Backed Securities’ tag
The Disassociation Between Mortgage Rates And The 10-Year Treasury Note
This chart may read like gibberish, so I notated it.
It’s meant to illustrate that daily mortgage rates are not based on the yield of the 10-Year Treasury Note. Sure, there is a long-term correlation between the two, but "long-term" doesn’t do us any good when we’re looking to lock an interest rate today.
We’ve covered this topic in-depth once before, but it’s worth revisiting.
Mortgage rates are based on the price of mortgage-backed securities, plus all applicable fees. Specifically, the formula works as follows:
- Start with the base mortgage rate, as set by Wall Street
- Add adverse market delivery charges
- Add loan-level pricing adjustments
This mortgage-rate formula is a major reason why rates rarely vary from lender-to-lender. There’s just no wiggle room in there because the rate is set by the combination of mortgage-backed bond prices, plus whatever fees that Fannie Mae and Freddie Mac tack on top.
In other words, conforming mortgage rates have nothing to do with the daily 10-Year Treasury yield (although the press may tell you otherwise).
Today’s chart confirms it.
Now, as an unfortunate post-script, getting access to pricing in mortgage-backed securities is both difficult and expensive. So, if you ever have questions about what mortgage rates are doing on a given day, just know that you can always call or email me, or follow me on Twitter.
I’m happy to share with you what I know so you can make better mortgage decisions.
Doubting the Viability of Fannie Mae
With Washington increasingly relying on Fannie and
Freddie to pick up the slack in buying mortgages and mortgage-
backed securities - the two between them bought 80 percent of all
mortgages purchased by investors in the first quarter of 2008 - The New
York Times in an article on Tuesday asked whether the two companies were
up to the task.
The Times article says that some financial experts
worry that the companies are dangerously close to the
edge. The article quoted analysts as saying that the companies are
sitting on billions of dollars in additional losses that
they have not yet…