Mortgage Rates and the Impact from Commercial Mortgage-Backed Securities
What has happened to mortgage rates since the U.S. Government pulled out of the CMBS (commercial mortgage-backed security) business at the end of March 2010?
Honestly, I truly believed the cost of a mortgages would have risen once the US Government stopped buying “CMBS”. Not so says Drew McKenzie, one of Bank of America’s leading mortgage bankers!
You may recall that a month and a half or so ago the U.S. Government stopped its large-scale purchases of U.S. mortgage-backed securities. Many pundits thought that mortgage rates would soar once this event occurred. Prevailing rates on mortgage loans up to $417,000 have instead fallen well below 5% on 30-year paper and to 4.25% on 15-year paper. Jumbo paper (above $417,000) is nearly as low with some rates, depending on the county in the U.S., now also below 5% on a jumbo 30-year.
How did this happen?
Here’s one plausible explanation and it has to do with the turmoil in Greece. The Greek government, with the help of our Wall Street banks, borrowed “off balance sheet”, just like Enron did. This made markets and investors very uneasy as it broke a sacred confidence that sovereign nations would always operate in transparent and honest ways with respect to the markets. Since Greece has the same currency as the rest of Europe and is part of the EU, the currency for all of Europe has been pushing down a lot. Nearly every hedge fund that operates in the currency markets is “short” the Euro, meaning they have bet it will fall and continue to fall. Since currency markets are many times the size of debt and equity markets, there is a lot of money looking for a home (when a Euro is “sold” the money has to go into something).
As banks and investors sold or dumped Euros, money has been flowing into (buying) U.S. treasuries faster than BP can pump oil into the Gulf. This purchasing has brought U.S. treasury rates down quite a bit and made mortgage bonds look attractive in terms of yields offered to an investor. So investors, not the government, have been snapping up (buying) mortgage-backed securities. This in turn has pushed mortgage rates as low as can be recalled.
How long this latest financial hiccup will last is unknown at this point.
Guest post provided by long time business partner and friend, Drew McKenzie.
Drew McKenzie
Phone: 973.316.4574 or 973.316.4574
Fax: 866.759.8022
email: drew.mckenzie@bankofamerica.com
Federal Reserve Raises Key Interest Rate
The Federal Reserve raises the short term interest rate in attempt to force lenders, banks and financial institutions to use private funds!
Is this the beginning of the secondary mortgage market making a comeback?
When the Fed would eventually raise interest rates has been of great debate among economists, although most didn’t expect to see it happen this soon even on this level.
Commercial Mortgage Backed Securities (CMBS): last time we heard that term it was on the Antique Road Show!
Stay tuned!
To view the full article, please visit csmonitor.com.
As seen above, interest rates won’t last forever. Now is the time to take advantage. Please contact Sean T Shallis at The Shallis Group for a personal consultation on your buying or selling needs at 201-427-1032.
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