Governments Role in Mortgage Rates

Mortgage pricing is off of the lows from early January. The reason for this is simple, as the global economic downturn worsens more countries are issuing debt. This is forcing the TBILL investors to raise their yield requirement at auctions to keep the demand for our debt sufficient.

The U.S. government’s promise to purchase $500 billion of MBS by the end the 2nd quarter is the ONLY thing keeping mortgage rates down as evidenced by most institutions selling their current mortgage production immediately. This is a sign that the risk vs. return at current mortgage rates is not sufficient. Treasury is financing the MBS purchases with TBILL issuance so the rise in the yield of TBILLs (particularly the 10yr) is forcing the Treasury and GSEs to raise the yield at which they are purchasing mortgages, resulting in higher rates.

The two questions a potential borrower should consider are:
Will treasuries rally back to the record low yield levels we saw in early January?
Will the global economic slowdown turn around in the next 6 months?

If neither of these occur, then it is likely mortgage pricing will continue to slowly get worse. If you haven't done so, now is a great time to look at getting locked in.