Yields on Fannie Mae and Freddie Mac mortgage securities that guide U.S. home-loan rates widened to a seven-month high relative to Treasuries as borrowing costs near record lows led to speculation that issuance will increase.
Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds increased less than 0.01 percentage point to 0.93 percentage point more than 10-year Treasuries as of 9:33 a.m. in New York, up from 0.69 percentage point on April 26 and the biggest gap since Oct. 21, according to data compiled by Bloomberg.
Yields on agency mortgage securities have been declining more slowly than those on benchmark 10-year Treasuries, which have retreated as investors seek only the most-liquid debt, concerned that Europe’s debt crisis may derail the global economy and damage banks. Spreads also widened because low mortgage rates may spark refinancing, leading to more supply, FTN Financial strategist Walt Schmidt wrote in a note to clients yesterday.
“There’s always people who missed out” on recent refinancing opportunities, Steven Jacobson, chief executive officer of Madison, Wisconsin-based Fairway Independent Mortgage Corp., which originated more than $3 billion of loans last year, said yesterday in a interview at a Mortgage Bankers Association conference in New York.
Refinancing demand hasn’t been “crazy or dramatic,” with low rates “not as big a deal” as in November 2008, when the Federal Reserve said it would buy mortgage securities, driving down borrowing costs and pushing applications to the highest since a record refinancing wave crested in 2003, he said.
Falling Rates
Mortgage rates fell further in 2009, giving more borrowers a chance to lock in low rates, according to McLean, Virginia- based Freddie Mac, which like Fannie Mae is being supported by unlimited U.S. capital after being seized in 2008.
The average rate on a typical 30-year fixed-rate mortgage fell to 4.84 percent in the week ended May 20, the lowest since December and near the record of 4.71 percent reached that month. That was down from this year’s high of 5.21 percent in early April.
Yields on the Fannie Mae securities fell about 0.01 percentage point today to 4.05 percent, near a six-month low and down from 4.67 on April 5, Bloomberg data show.
The Fed’s $1.25 trillion of purchases of home-loan bonds guaranteed by Fannie Mae, Freddie Mac or federal agency Ginnie Mae helped narrow the spread on the Fannie Mae securities over benchmarks to a record low of 0.59 percentage point on March 29, two days before the program ended.
By Jody Shenn
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