Mortgage positions were upset Tuesday as long-term rates accelerated their climb in the wake of an agreement on an ambitious government stimulus plan -- a rate move that some said could have been worse if the Federal Reserve hadn't indicated it would continue its quantitative easing.
As of late Tuesday afternoon, long-term mortgage rates and rate-indicative yields had jumped to highs not seen in roughly six months with the benchmark 10-year Treasury hitting 3.45%.
And there is now a growing fear that the rate rise could snuff out refis and hurt home purchases, upsetting investors and lenders in both the primary and secondary mortgage markets.
"When you get a move like this, it just ends up causing disruption in people's positions and rapid covering," Fannie Mae director of mortgage market analysis Richard Koss told National Mortgage News.
"Someone somewhere is blowing up, an unhedged pipeline, a leveraged treasury fund, a leveraged agency MBS fund," said one investor in MBS, commenting on the rate rise.
"No doubt it's affecting us," said Michael Foote, a loan officer in California. "Where I work we are looking at taking our 15-day rate lock down 100 bps to offset some of the rate rise. We have purchase loans that were floating and won't qualify with the increase. Remember many deals have high DTIs so even .375% to the rate can kill a deal."
Foote added that, "Refinances are hosed too. We have many that just waited too long to get their applications in."
Opinions differ as to whether the run-up in yields is an indication the Fed's QE program is not working, or simply an indicator that the economy is recovering – something that could convince the Fed to adjust the program accordingly. Koss said he believes rates would be even higher if it were not for QE.
The Fed cited continuing high unemployment rates in its decision to maintain the QE program.
