The Massachusetts Mortgage Broker

#1 Authority on Massachusetts mortgage rates & all things Massachusetts mortgage

Massachusetts Mortgage
← →

Massachusetts Mortgage Rates Revealed – How Lenders Determine Mortgage Rates Every Day

January 17th, 2010 · 18 Comments · Massachusetts mortgage rates

Without question, the number one topic misunderstood by mortgage shoppers is how Massachusetts mortgage rates are determined every day. Most consumers incorrectly believe that the Federal Reserve sets “rates” and base their decisions on this faulty assumption.

Even though the media has done a good job educating Massachusetts mortgage shoppers on the importance of getting a pre-approval, it’s shocking the poor job they’ve done explaining how lenders set mortgage rates. Tragically most consumers end up making poorly informed decisions about when to float or lock their mortgage rate because their loan officer doesn’t have a clue either.

But it’s not your fault. In fact, the mainstream media and most loan officers incorrectly believe that mortgage rates track the 10-year Treasury note. Even well-respected news sources like CNN/Money Magazine routinely reinforce this bad information (see highlighted text in article to the right).

But let me make this absolutely clear – mortgage rates do not track the 10-year Treasury note and often times do not even move in the same direction.

In reality, mortgage rates are determined from the performance of mortgage-backed securities (MBS).

Mortgage-backed securities are asset-backed financial instruments whose value is backed by pools of mortgages. The overwhelming majority of MBS are issued by Fannie Mae, Freddie Mac and Ginnie Mae (FHA/VA) and traded every day on an exchange, similar to the stock market. It is from this daily trading of MBS that mortgage rates are determined.

Unlike stocks, mortgage-backed securities are bonds whose yield (rate) moves inversely to its value (price). So when the price of MBS are increasing, mortgage rates are falling. Conversely if the price of MBS are falling, mortgage rates are increasing.

Now that you understand how mortgage rates are determined, the question naturally turns to how do you follow the trading of mortgage-backed securities.

MBS data is not widely published other than through mortgage industry-specific resources and public real-time MBS information is not available at all. This is likely where the myth of mortgage rates following the 10-year Treasury note started.

Without easy access to MBS data, the media and average loan officer turned to the 10-year Treasury as a proxy for mortgage-back securities. But if you rely on the wrong information for your float or lock decisions, it can cost you…and cost you big time!

The problem with this is that your loan officer should know better. Your loan officer is supposed to be a mortgage expert and industry insider. That’s why it’s critical for those shopping for Massachusetts mortgage rates to select a mortgage professional who invests in the tools that allows them to offer rate lock advice based on real information, not some loan jockey who flies by the seat of their pants.

Fortunately there is a small group of mortgage professionals like myself throughout the country that make the (costly) investment necessary for real-time data on mortgage-backed securities (see chart above for an example). It’s simply your job to find us.

So the next time you are shopping for a Massachusetts mortgage, just ask the following two questions :

  • Where do mortgage rates come from?
  • Do you have access to live, real-time mortgage bond quotes?

If you don’t get back the answers you should, then RUN – don’t walk – RUN to a mortgage professional that does!

About the Author
Geof McLaughlin, better known as “The Massachusetts Mortgage Broker”, is a nationally acclaimed mortgage professional committed to educating and empowering consumers about all things mortgage through his popular Massachusetts Mortgage Broker blog.
Geof is a top loan originator for one of the country’s leading independent mortgage companies, Mortgage Master Inc, with a proven reputation of offering its clients the best Massachusetts mortgage rates and lowest closing costs. He can be reached directly at 508.656.0055 or geof@MAMortgageBroker.com.

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.

Tags: ·

18 Comments so far ↓

Leave a Comment