Heads up! Mortgage rates rise nearly .500%

Since last Thursday mortgage rates have climbed nearly .500% with the majority of the upward trend occurring between Tuesday and today.

So why are rates climbing while the Federal Reserve is actively buying mortgage bonds in an effort to keep mortgage rates low??

The driving influence of this change is the US Treasury who began selling mass amounts of new Treasury Notes this week. On Tuesday, they auctioned 40 Billion in 2 Yr notes, on Wednesday, 35 Billion in 5 year notes, and today 26 Billion in 7 year notes…..all to finance the government spending needed for the stimulus packages.

While the Federal Reserve was buying 1-2 Billion per day in mortgage backed securities in an attempt to raise demand (higher demand and prices for bonds drives mortgage rates down), the Treasury auctioned 101 billion in notes in over a 3 day period, weakening the demand for Mortgage bonds.

For any of you who are familiar with my updates, you know that mortgage rates will change whenever the price of mortgage bonds changes more than 16 basis points up or down on any given day. The market has changed over 360 basis points since last Thursday….hence the .500% jump in rates.

We may see rates settle back down after the auctions end this week. Whether we regain the entire .500% we lost will remain to be seen given that this is just the first in a series of Treasury note auctions with the next one upcoming the 2nd week in June.

So….what do we need to do for buyers who needed a rate in 4’s. Remember that on most loan programs 1 discount point will buy the interest rate down .250% for the life of the loan.


Call me for details.