The Mortgage Note

 Friday, March 21, 2008 9:06:57 AM

Sometimes, we see rates change multiple times per day.  Sometimes, those changes affect ALL loan programs; other times, they affect only certain types of loans.  What does that?  What can make ARMs (adjustable rate mortgages) have higher rates than fixed rates?

Loans are bundled and sold on the bond market as mortgage-backed securities, or MBS's.  At any given time, the bond market can become flooded with either type of bundle:  FRMs or ARMs.  If the market gets too fat with fixed rates and they aren't selling quickly, lenders can adjust rates on those to make them higher-yielding (increased rates for you, the borrower) to try to generate interest among buyers.  The same thing can happen with ARMs as well.  There are days, or portions of days, that certain types of ARMs are at higher rates than certain fixed rate programs.  During those times (like this past Tuesday, I believe it was), rates on some adjustable programs were considerably higher than we're accustomed to seeing them.  The reason was, that on that day, the market was flooded with MBS's backed by those types of loans and nobody was buying.

That's how the market works.  Check back for more updates, or another lesson in the mortgage marketplace....