The Mortgage Rate Roller Coaster

Typically when the economy is struggling mortgage rates fall. Wonder why mortgage rates are jumping all over the place when it is clear the economy is taking a hit?

It sounds like two things are happening that are causing the rates to move from 3.5 percent one day to 5 percent the next. The first is the reaction of lenders to the large number of people trying to refinance. The second, and really probably the more influential, is the inability to sell mortgage-baked securities in the secondary market.

Most lenders don’t hold mortgages instead they sell the mortgage loans which have been bundled into a collection of mortgage-backed securities (often called mortgage bonds) to investors in the secondary market. The challenge is that right now there is a glut of bonds on the market making bond prices low.

According to a recent article by Clare Trapasso, “The Fed has pledged to buy up at least $500 billion in U.S. Treasury bonds and $200 billion in government mortgage-backed securities over the coming months. That’s very likely to stabilize mortgage-backed securities as the demand is expected to bring mortgage rates down again.”

Hopefully that will happen and we will see some normalization in rates. In any case shop around. If one lender isn’t offering the rate you want there may be another who can do it. If you are interested in reading more on this topic check out Trapasso’s article.


Tracey Stotz, Broker

(619) 200-0918

5550 Grossmont Center Drive. #440-2634, La Mesa, California 91943