Once More With Feeling- Mortgage Rates Are Determined by Mortgage Bonds (MBS), Not The Ten Year T-Note
By: Brian Brady,
Jumbo Mortgage Broker,
Post Archive,
RSS FeedPosted: Tuesday, February 26th, 2008, 12:50 pm MST
Category: Lending
Mortgage rates are volatile today…very volatile. There are two underlying factors contributing to the volatility: suspicion of the credit quality of the MBS market and supply/demand imbalance (more people want money than is offered).
Why am I so adamant about the fact that the ten-year treasury note is not the determining factor of mortgage rates? The statement is factually incorrect. While the two securities often move in concert, polarity can occur and sometimes does; this is one of those times. The ten-year T-note is considered the benchmark, not bellwether fixed-income security. This means that all other securities are compared to the 10-year T-note (we call that the “spread”). It is GENERALLY a guiding indicator of ALL rates, however, in times or crisis or exuberance, it can’t be relied upon for other fixed-income securities’ direction. Spreads to the T-note widen and narrow due to extraneous variables.
The real estate industry is calling for higher professionalism among lending professionals. Some REALTORs, however, are clinging to the demonstrated neglect the mainstream media delivers (check the comments). An argument that bankrate.com is the source of mortgage rate movements, because the “most originators use it”, is akin to suggesting that Zillow.com is superior in home pricing than the Multiple Listing Service.
Mortgage professionals have at least three MBS quote services available:
1- Mortgage Market Guide ($100/month)
2- MBS Quoteline ($50/month)
3- Rate Link ($45/month)
Four originators (Me, Dan Green, Rhonda Porter, Mike Mueller) with a combined 2007 funding production in excess of $100 million, subscribe to MBS pricing. Why? We’re mortgage professionals. We see the need to invest $50-$100/month in the tools that serve our clients’ best interests.
What can REALTORs do today, to help the mortgage industry improve its professionalism? Well, you don’t have to rely on the government to make the world a better place. Get educated by professionals in the know, and start asking loan hacks which MBS pricing service they have. Â
Would you refer a client to a REALTOR that didn’t subscribe to the MLS? Of course not. Why?
Your clients are much too important. Choose mortgage professionals carefully.
Related posts:27 comments
27 Comments so far
To hammer that point home: For most of today, mortgage bond pricing was DOWN while 10-year treasury pricing was UP.
A loan officer watching the wrong indicator would have recommended a FLOAT instead of a LOCK.
This happens quite a bit, actually. Poke around my Web site and you’ll find some easy-to-follow graphics on the topic.
Thanks, Brian, for the post. I like the Zillow-MLS analogy.
“Thanks, Brian, for the post. I like the Zillow-MLS analogy.”
There’s nothing wrong with Zillow nor Bankrate; they are credible media companies with outstanding reputations. However, precise transaction execution comes from the interpretation of the raw data by practitioners.
Professionals use those raw data tools
You mean the values on Zillow are not right? Who knew? THX for the info Brian!
“Your clients are much too important. Choose mortgage professionals carefully.”
I had this conversation with Joshua Dorkin to day about choosing service providers carefully — they’re not all equally trained or competent. Thanks
Thanks for the info, Brian. In case I missed it, have you ever done a post that focuses on what specific questions to ask your loan ‘hack’? If you haven’t please consider compiling this sort of information into one post that would help empower consumers.
I can’t remember if it was you or Dan Melson who wrote about the many ways your broker or loan officer can boost their income at your expense. I understand everyone has to make a living, but a little education can help save an unnecessary expenditure, or two.
[...] Once More With Feeling – Mortgage Rates Are Determined by Mortgage Bonds (MBS), Not The Ten Year T-N…, by Brian Brady. [...]
“I can’t remember if it was you or Dan Melson who wrote about the many ways your broker or loan officer can boost their income at your expense”
Could be either of us but more likely, Dan. I write more like a cheerleader for the industry while Dan’s writing is more consumer-centric than mine.
That SOUNDS like Rob Blake
“You mean the values on Zillow are not right?”
Hmmm… from the gut. In a word, no. They’re not as “precise” as a professional using the MLS and assessor’s tax records. Bankrate shows historical rather than market data.
In both media companies’ case, they are credible estimates of which way the market is headed over an extended time frame. You can work trends with the data they provide but determining market or execution pricing is best left to professionals using more advanced data.
Data aggregation is only as good as the professional who analyzes it. Even if Zillow were to provide national active listings and Bankrate were to provide live MBS quotes, well-prepared, n experienced professional will offer superior transaction execution recommendations.
Of course, I don’t discount those two media companies’ utility, I use them daily in my preparations and practice.
AH, come on Brian my sarcasm was a bit more obvious I hope.
THX for the response.
Naw, I caught it, Jason. I wanted to talk about the analogy more. Thx!
Thanks Brian. I cannot imagine how a professional could have a mortgage practice without a source to track MBS. Just wait for the next rate sheet with changes? No thanks! Our current market will create a significant divide between those who are committed to their profession and those who are not.
How about this for more evidence (as of right now):
MBS: UP 44 bps on the day
10-year treasury: DOWN by 19 bps on the day
On point, Dan.
Let me translate what Dan just said. The originators who said to float, yesterday, based on Treasury data, would have costed your clients another .375% in discount points (or about $1000 in closing costs for a $300,000 loan). Today they would have locked, based on Treasary data.
A loan hack, with an eye on the incorrect data, almost guarantees that your client will be a loser (in this volatile market.
It’s only a grand, though
[...] works, mortgage rates may very well be higher by that time . The Fed cutting rates typically causes mortgage bonds to react for the worse as it is an inflationary sign. It’s great for your HELOC, not so for [...]
I must have been fighting jetlag still when you wrote this as I missed it. Great post and it still amazes me how many mortgage professionals say the 10-yr or even the Fed for changing rates.
Of course, there are many that still buy the mortgage coach, then call themselves “mortgage planners” thinking that is the key to it all.
[...] Brian Brady mentioned over at the Bloodhound the importance of working with a mortgage professional that is watching the markets and reporting on what is currently happening, not old news. They also need to be watching what really drives the mortgage rates and not spreading incorrect information. [...]
[...] when I talked about how important it is to use a mortgage planner who subscribes to real-time MBS pricing? Why am I so adamant about the fact that the ten-year treasury note is not the determining factor [...]
Who should I get in contact with about a states own laws about mortgage broker bonds and as such, how would I get a mortgage bonds form? I life in England and am considering moving to America, don’t know where yet however I was doing some general reading about housing and came across the term mortgage broker bonds and am a little confused, is it a mortgage or a loan to acquire a mortgage?
Also if I want to set up life insurance do I need insurance bonds? Or can I simply open a policy with a company? I’m a little confused by some of the jargon. I am not moving anytime soon but thought I should be aware of things I will need to understand.
Excellent advice. And your comparison to a real estate agent that doesn’t subscribe to the MLS is spot on. One thing thats actually “good” about the mortgage and real estate markets, is that a lot of the riff raff is bailing out of those industries and going somewhere else where its “easier”. Now, it won’t guarantee a good, quality person – but a lot of the wannabes, are moving away toward greener pastures.
[...] your business allows me to offer ideas for improvement. Ask any BloodhoundBlog author or reader what drives mortgage rate volatility. I’ll bet you the price of November’s UNCHAINED conference that they won’t say [...]
[...] influencing factors but often move in polarity to the mortgage-backed securities market (MBS). The only true influencing market then, is the mortgage-backed securities market. With fewer than 10% of the loan originators following this market, you have a 90% chance of hiring [...]
Its now September and its definitely a challenging market for realtors and loan officers. Yes, alot of the riff raff is bailing out…moving on as they should. No guarantee for quality, but the chances are much better.
[...] heard me say this before: The major factor affecting fixed rate mortgages is the mortgage-backed securities markets, not the ten-year treasury bond, nor the Fed Funds Rate. That market is what I watch when I write [...]
[...] I think that was an unintentional slip. Seasoned originators know that the ten-year treasury note does not directly influence mortgage rates, the mortgage-backed securities market does. I addressed this over on Bloodhound Blog: [...]
[...] My mortgage rates report is syndicated from coast-to-coast. In it, I try and help home buyers interpret what is happening in the economy and those effects on the mortgage-backed securities market. As we discussed before, the mortgage-backed securities market is the single best indicator of mortgage rates movements. [...]
[...] may very well rise while the mortgage-backed securities market improves. I told you that the only relevant indicator of mortgage rates is the mortgage-backed securities market. Why would I reverse my [...]
[...] the silly little market manipulation might work. How would we pay for this massive purchase? Remember when I said that mortgage-backed securities trade higher than their treasury bond cousins? In banking we call that a “spread” and that spread was really fat last week. [...]