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MBS: What REALLY Determines Your Mortgage Rates

 · Mortgage Backed Securities In monitoring MBS with underlying nontraditional or subprime residential mortgage pools, the Bank cannot rely solely on investment ratings of the securities, as ratings of certain products may be untested over a credit cycle and.

GNMA mortgage-backed securities (MBS) are backed by the full faith and credit of the United States govern- ment, and thus offer a high- quality bond alternative to U.S. Treasuries. GNMA MBS offer incremen- tal yield over U.S. Treasuries as compensation mainly for mortgage prepayment risk.

A common misconception is that mortgage rates are set by the Federal Reserve. That’s not true — rates follow prices for mortgage-backed securities (MBS).

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Your mortgage’s interest rate is set by market forces beyond the lender’s control. Mortgage interest rates are determined mostly on the secondary market, where mortgages are bought and sold. Fannie Mae and Freddie Mac are huge financial institutions that buy mortgages and bundle them into securities that behave like bonds.

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Mortgage rates continued a trend of. are closing outside of 30 days, there really is no reason to lock at this point. I’d wait until after the Holiday season and make sure your loan officer is in.

Contrary to popular belief, mortgage rates are not based on the 10-year Treasury note. They’re based on the bond market, meaning mortgage bonds or mortgage-backed securities.When shopping for a new home loan, many people jump online to see how the 10-year Treasury note is doing, but in reality, mortgage-backed securities (MBS) drive the fluctuations in mortgage rates.

MBS: What *really* determines your mortgage rate. If you sell your bond for just $800, the buyer gets that same $50 a year in interest. But, having paid just $800, he will get more interest income for the price paid. Take $50 interest and divide by the $800 purchase price, and you get a yield (rate) of 6.25 percent.

A mortgage rate lock (also called a lock-in) is a lender’s promise to hold a certain interest rate at a certain number of points for you, usually for a specified period of time. It’s meant to cover you for the time period while your loan application is being processed and you’re preparing for the closing on the house.

Fannie Mae’s fixed-rate MBS are securities backed by pools of mortgages with interest rates that are fixed for the entire term of the mortgage. Certificates for fixed-rate MBS are normally issued in 50 basis point increments (e.g. 4.0%, 4.5%, 5.0%, etc.).

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