Every day, we as lenders receive that day's rate sheet from our investors. In some cases, we receive 2nd, 3rd, and even 4th rate sheets on the same day from investors due to rates going up or rates going downduring the course of the same day. As a lender for the last 10 years, I have had to learn a lot about the stock market and the bond market to be able to tell which direction mortgage interest rates are heading so that I can get my clients' locked in before they go up and/or not lock them in before they fall and I want to share a very brief, easy to understand way of predicting the direction of mortgage interest rates.
If you are shopping for a mortgage and a Mortgage Lender tells you that the 10-year Treasury indicates projected mortgage rate direction, RUN! That person has their eyes on the wrong indicators! A lot of tiems, the 10 year Treasury moves in the same direction as mortgage backed securities on the bond market, but not always! Also, make sure that the lender you are working with has access to live, real time mortgage bond quotes. I subscribe to a service that emails me, texts me AND calls my cell phone several times a day with bond quotes, as well as with alerts to either lock (rates will be moving up) or float (rates will be moving down).
Anybody that invests money with a broker only has 3 options of where that money is placed: cash, stocks or bonds. Obviously, "cash" doesn't provide as good of a rate of return so
most money is invested in either stocks or bonds.
Because mortgages are pooled and sold on the bond market (they are called mortgage-backed securities, or MBS), the bond market is the basis for determining the interest rate on mortgages. If the bond market is doing well (up), interest rates are lower and if the bond market isn't doing so well (down), interest rates will increase. This is called an "inverse relationship".
Another inverse relationship, typically, is the stock market vs. the bond market. If people are investing in the stock market, which causes it to go up, they are typically taking out of the bond market, causing it to go down, which in turn causes mortgage interest rates to go up. If they are investing more in the bond market, causing it to go up and interest rates to go down, they are taking out of the stock market, causing it to go down.
Based on the above, you can see that if the bond market goes up, the stock market goes down, as do mortgage interest rates and if the bond market goes down, the stock market goes up, as do mortgage interest rates.
The easiest way to remember how this works is this: if the stock market is moving up, so are interest rates. If the stock market is going down, so are mortgage interest rates. This is TYPICALLY how it works and the best way for lay people to remember how to predict the direction mortgage interest rates will move!
By Sue Botelho Mortgage and Lending with Waterstone Mortgage Corporation
Posted on August 28, 2008 04:53 PM