What do mortgage investors think about these low rates? Many believe that 30-year mortgage rates will need to drop below 4% and establish new record lows to really pump up the refi market for some of the lower coupon mortgages that were originated in 2010/2011. There are still underwriting and equity issues, and the economic hurdles that were introduced due to higher MI for FHA loans and higher LLPA for agency loans have to be crossed. It is also important to note that some of the higher loan balance loans will not have the economic incentive to refinance as GSE loan limits are scheduled to be lower effective Oct 1, 2011. Lastly, at this point higher LTV loans originated under HARP will not be eligible to participate in this potential refinancing mini-wave.
A move in Treasury or MBS prices may not directly translate into rate-sheet pricing for loan reps & borrowers – it depends on profit margins and hedging costs at the company level. But compared to previous big moves down, lower 10-year rates are translating into lower mortgage rates in this rally faster – perhaps companies are going after market share. As one trader put it, “the market feels very despondent right now, realizing that fiscal policy is now more restrictive, Fed QE policies have not flowed through to the consumer, confidence is dropping over European situation, and so on.”