THE BASIS POINT

2011 Jumbo Mortgage Outlook, Rates Down Slightly On Korea & Ireland News

 

Why Rates Are Down Slightly
Are we on a rate rising or falling trend? Last week and the week before, mortgage rates moved higher because of inflation fears from better economic data, and political opposition to the Fed’s quantitative easing program. Then yesterday bonds rallied a bit to bring rates down. The $35 billion 2-yr auction was decent, and the 10-yr note was up better than .5 in price to yield 2.81%. In mortgage-land, traders reported seeing less than half the normal volume, and MBS prices finished the day better/up by about .250 in price.

This rally has continued today after overnight news about North and South Korea firing on each other. This in addition to the Ireland debt crisis, has caused bonds to rally a bit more and rates are down about .125%. We have a $35 billion 5-yr Treasury note auction ahead of us today ($29 billion in 7-yr’s tomorrow), along with the release of the FOMC minutes from November 3rd. But as anticipated Q3 real GDP growth was revised 0.5% higher to +2.5% from +2.0% previously. So brace for a wild trading day, where this morning’s rate drops might not hold.

2011 Jumbo Mortgage Outlook
Redwood Trust is working on a second jumbo mortgage securitization that it expects to complete in the first quarter of next year. By the end of October, the company had purchased $160 million of residential mortgage loans and had made commitments to purchase an additional $138 million. In April 2010, Redwood Trust did the first jumbo securitization since the credit crisis began in late-2007.

Fannie and Freddie still provide for a fully functioning mortgage securities market on loans up to $729,750 and this is why rates for loans up to this amount are so low. But jumbo loans above this amount are still only made by banks who keep the loans in their portfolios and don’t securitize which is why rates are about .375% to .75% higher for jumbo loans. Redwood Trust is emerging as a key firm in jumbo securitizations, as the linked story above discusses.

 

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