Mortgage rates jumped dramatically during the past week, rising to an average of 6.37 percent for a 30-year conforming fixed-rate mortgage — 41 basis points above the average rate just one week earlier. According to Bankrate.com’s weekly national survey of large lenders, rates on 30-year jumbos soared to 7.55 percent. The jump in rates represents the single largest weekly increase since April 1994. Housing Wire reported Wednesday that mortgage application activity has fallen off of a cliff as rates have risen amid a renewed focus on inflation within the bond market. But inflationary concerns aren’t the only driver behind the mortgage rate increase, according to traders on Wall Street that agreed to speak with HW on an anonymous basis. One of the key factors now driving mortgage rates, they say, is growing secondary market sentiment that even conforming mortgages will soon be less fungible than they have been in the past. “That sort of uncertainty gets priced into the trade, no question about it,” said one source. In particular, while SIFMA has said it will keep newly-conforming jumbo mortgages trading on a specified-pool basis rather than including such loans in TBA trades, investors face a growing uneasiness over just what else is going to be thrown at the market. Congress is already considering a housing stimulus package that would make modifications of mortgage principal allowable in Chapter 13 bankruptcies, for one; news today that the OTS is considering the creation of a “negative equity certificate” market is another source of uncertainty. Sources suggested to HW this week that federal regulators, as well, are considering new rules surrounding securitization designed to help provide rate benefits for ‘jumbo conforming loans.’ It’s unclear how any move by the Treasury here would impact the TBA market, in particular, but it appears that what is already out there is enough to move prices in the short-term. The TBA trade is hinged on the perceived fungibility of mortgages being traded — on other words, that one mortgage pool is more or less similar to another mortgage pool. With the uncertainty now hanging over the mortgage markets, investors are seeing the potential for much greater risk, even in TBAs. “What we’re seeing now may be an overreaction,” said one source, “but in the current market environment, you just can’t seem to tell what’s coming next.”