Mortgage Rates Jump as Agency MBS Spreads Rise
Fixed mortgage rates jumped up significantly this week, as investors in the secondary mortgage market wrestled with supply and demand issues in the agency MBS market. Freddie Mac (FRE) reported Thursday that the average rate on a 30-year fixed-rate mortgage jumped 42 basis points to 6.46 percent with an average 0.7 point for the week ending Oct. 30. Rates are above last year's levels, when the 30-year fixed-rate mortgage was at an average of 6.26 percent. Bankrate.com's own weekly rate survey of 100 or so lenders found rates at their highest level in three months, and said that 30-year fixed mortgage rates had soared from 6.32 percent to 6.77 percent. The rate increases posted this week were largely expected given continuing problems in the agency MBS market; some of the issues were the subject of earlier coverage on HousingWire. The spread between between Fannie’s current-coupon 30-year fixed-rate mortgage securities and interpolated 5 and 10-year U.S. Treasuries had soared to 277 points on Monday, according to UBS data, and headed north from there the rest of this week. The previous all-time high in mortgage credit spreads was a spread of 284 points in March of this year, ahead of the failure of Bear Stearns & Cos; spread levels should historically be closer to 180 basis points or so. Bankrate.com reported Thursday that the spread had reached near 300 basis points by market close on Wednesday. Freddie Mac, for its part, did not mention current market issues in its rate commentary this week, focusing instead on modest rises in Treasuries. “Long-term mortgage rates followed long-term Treasury bond yields higher this week, pushing fixed-rate mortgages up to levels of two weeks ago,” said Frank Nothaft, Freddie Mac vice president and chief economist. Five-year Treasury-indexed hybrid ARMs averaged 6.36 percent this week, Freddie's survey found, up from last week when it averaged 6.06 percent. A year ago, the 5-year ARM averaged 5.98 percent. “The Federal Reserve’s 0.50 percentage point cut in the discount rate and federal funds target rate on Wednesday was widely anticipated in the financial markets, and is likely to keep short-term interest rates low," Nothaft said. "Consequently, initial interest rates on ARMs, which tend to be set relative to other short-term rates, may remain near current levels. " For all of the recent volatility in mortgage rates, it's worth reiterating that primary mortgage rates aren't exactly high by historical standards. Despite the huge credit spreads, we’re still not staring at 15 percent mortgages any time soon -- and for most borrowers, underwriting criteria represent a far tougher hurdle in obtaining a mortgage relative to whatever movement rates are making right now. Write to Paul Jackson at firstname.lastname@example.org. Disclosure: The author held no positions in any of the stocks mentioned when this story was published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.