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03 Dec 12 Sales on Mortgage Bonds Spike 45 Percent

The short-term future for home loan interest rates may lie in the sales of mortgage securities. Issuance of U.S. government-backed mortgage securities soared 45%last month to the highest since at least 2009 as lenders rushed to create bonds before guarantors Fannie Mae and Freddie Mac increase their fees.
About $207 billion of securities backed by the taxpayer- supported firms or U.S.-owned Ginnie Mae were issued, according to data compiled by Bloomberg. Home loan lenders moved up issuance to precede a 10-basis-point increase in Fannie Mae and Freddie Mac guarantee fees that took effect Dec. 1. Sales of the securities will slow, according to Barclays Plc analysts, after the deluge contributed to a widening of yields on the bonds the Federal Reserve is buying that almost erased the effect of its latest purchase program.
“This dynamic should begin to reverse now since only the timing of issuance is affected and not the overall amount,” the New York-based analysts led by Nicholas Strand wrote in a Nov. 30 report. December “issuance should be significantly less in comparison. This is a significant positive.” The difference in yields between 30-year Fannie Mae securities trading closest to face value and the average of those for five- and 10-year Treasuries reached 110 basis points on Nov. 14. That was 4 basis points narrower than the gap on Sept. 12, a day before the Fed said it would buy $40 billion more mortgage bonds a month to bolster the economy. A basis point is 0.01 percentage point. Read the original article on Business Week.

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