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American Capital Agency Corp. Message Board

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  • capecoralvorlon capecoralvorlon Jun 2, 2012 12:18 AM Flag

    I Think The Yield Spread Has Widened

    Not sure why you're using 10 yr rate instead of mortgage rates to figure out the spread.

    Mortgage rates are about
    3.75% 30 yr
    3.08& 15 yr
    2.63% 5/1 arm

    That's for great credit. Also as I understand mortgage rates can't go to much lower no matter how cheap it gets to borrow from the goverment. Am I missing something?

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    • Traditionally the 10 year rate is tracked by mortgage rates.

      There's a time delay, that's why the 15 year mortgage rate isn't under 2%. The 10 year treasury is an indicator, which means mortgage rates will continue to fall, BAD for MREITs.

      • 1 Reply to olee2116
      • The charts are fine, but they are showing rates which are higher than we are talking about now. The point was: Is there a point at which mortgage rates break-away from the T-bond rates because the banks have to run a business, and can't afford to issue 2% mortgages. I think the answer is yes; the rates will diverge.

        In MBA school, I learned that the best rate a bank can extend [i.e. for mortgages] is 3% above inflation. ((There are many kinds of mortgages these days so that's just an approximation.)) The banks need to pay for their cost of money, their overhead which is substantial, and they need to make a profit .... that's historically taken 3% ... add the rate of inflation to adjust for the higher most of money.

        Bottom-line: It seems like mortgages rates won't go much lower, regardless of 10-year T-bond rates, because it's not economically feasible for the lenders. There may be things I don't know here, so comment is always welcome, but articles are sometimes written by people who understand less than I.

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