The present push and pull on mortgages is the weight of massive fiscal stimulus related treasury supply (Very inflationary) vs. treasury/Fed signaling of MBS purchases. Aside from the Federal Government, it’s difficult for traditional MBS investors to justify buying low coupon MBS securities with the threat of built up inflation on the horizon (More interest in owning 5 & 5.5 coupons as opposed to 4 & 4.5). Their fear is mortgage rates rise, existing borrowers have a lesser incentive to refinance, mortgages stay on their books for longer periods of time with the prospect of having to be marked down to current market (4′s trading in the 98s today will probably be trading at 90 in 4 years…market to market accounting of present day MBS value)
In the long run, fixed mortgage rates have to rise. However, the short run could be longer than expected. Sharp up-tick in unemployment rate and present economy still pretty horrible
As markets show any signs of stability, fixed rates rise, but spread between shorter end of curve and adjustable rate mortgages decline… I.e. The people refinancing into fixed agency eligible today might have an incentive to refi into mid – term arms in 12 – 16 months
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