When Fannie and Freddie were put into conservatorship and the government took preferred equity positions in each company, the reasoning sold to the public was simple: stabilization of the mortgage market was critical to our functioning economy, and only by seizing control of the GSEs could that stabilization be achieved. Mission accomplished? Um, not quite. Not even close, actually. Well, since then, we've seen government arrangements that will see the GSEs buy up "affordable mortgages" from Federal Home Loan Banks and roll back risk-based delivery fees designed to help cushion the GSEs from a down housing market. But what we haven't seen is an improvement in the relative cost of mortgages; in fact, Bloomberg's Jody Shenn finds Friday that agency spreads are worse now than they were before the U.S. government stepped in and wiped out shareholders:
The difference between yields on Washington-based Fannie's current-coupon 30-year fixed-rate securities and 10-year Treasuries rose 12 basis points to about 204 basis points at 3:05 p.m. in New York, according to data compiled by Bloomberg. The rise in yields this week suggests higher interest rates on new home loans of about 50 basis points, or 0.50 percentage point.
And, indeed, rates have been rising sharply to end this week, our sources have told us. Almost immediately after we published Freddie Mac's weekly rate survey, we began receiving emails from brokers and LO's in the field telling us rates were most definitely NOT down. We'll look at updating the rate picture a little later this evening in the BuzzPost when HSH releases their rate data.