• Miscellaneous Tags

  • fb: this is a tag that indicates a post that’s being copied to our status feed on Facebook, and that is used by the application that does that copying for us. Feel free to ignore it. (You’re more than welcome to friend Sweth on Facebook, though, and/or to become a fan of Ethical Homes.)

  • green: one of our niches is working with the green/sustainable community, so our Twitter feed often includes information about green news, especially in the DC area.

• Mortgage Update Tags

  • bps: basis points. One basis point is equal to 0.01%; if a mortgage bond is trading at 1.00% above its “par” value, and the price increases to now be 1.12% above that par value, then the bond’s price has gone up by 12bps. (Prices for bonds are represented as the percentage of par value, so that 1.12%-above-par price is usually described as 101.12.)

  • FNMAnn (where “nn” is a 2-digit number): refers to the pricing of 30-year Fannie Mae bonds with a rate equal to the “nn” number divided by 10 (e.g. FNMA55 refers to the 5.5% Fannie Mae bond). Fannie Mae bonds are the basis for mortgage rates for many conventional mortgages.

  • GNMAnn: same as FNMAnn, but refers to the corresponding Ginnie Mae bonds, which are the basis for mortgage rates for many government-insured mortgages such as FHA, VA, and USDA mortgages.

  • mortgagerates: means the tweet is discussing current mortgage rates and/or the markets that underly them.

  • TSYn (where “n” is a 1- or 2-digit number): refers to the treasury note with a term in years equal to “n” (e.g. TSY10 refers to the 10-year treasury note).

  • FOMC: Federal Open Market Committee, aka The Fed.

  • MBS: Mortgage-Backed Securities. This is the generic term for the bonds that underlie mortgage rates, such as Fannie Mae and Ginnie Mae bonds.

  • BTE/WTE: Better (or Worse) Than Expected. Generally speaking, economic news that is better than expected is good for stock prices and bad for mortgage rates, while economic news that is worse than expected is bad for stock prices and good for mortgage rates.

  So a tweet of “#mortgagerates #FNMA50 100.95 UP 12bps (UP 34bps from prior close)” means that the Fannie Mae 5.0% bond is trading at 0.95% above its par pricing, up 12/100 of a percentage point from the last update, and up 34/100 of a percentage point from its price at the end of the last business day. This info is important because many mortgage interest rates are tied to the prices of these Fannie Mae bonds.

  As a very rough rule of thumb, you can approximate that when a particular Fannie Mae bond is trading at a price of around 102.00, then the interest rate that a borrower with excellent credit getting a 30-year fixed-rate mortgage and paying no discount points will end up with will be roughly equal to the interest rate for that Fannie Mae Bond. (e.g. at the end of the day on Friday, 6/19/09, the FNMA55 bond was priced at 102.18, and wholesale lenders were offering 30-yr fixed-rate loans with rates in the 5.375%-5.625% range.)

  Why do we tend to quote bond prices that are closer to 101 than 102? When prices go above 101 for a particular bond for an extended period of time, most bond traders start to “look down-in-coupon”, buying less of that bond with a 102 price and more of bonds with lower yields and prices; that means that prices in the 101 range give a snapshot of the most activity in the market, and thus the best idea of where the market as a whole might be going. Also, as a result of that bias in bond traders towards bonds priced below 101, most borrowers usually get a better bang for their buck by buying down their rate to match the bonds trading in that 101 price range, so quoting those prices tends to match the rates where most of our borrowers end up getting mortgages. (Note that occasionally the market veers into territories where these rules of thumb don’t hold. In 2010, for example, we encountered the phenomenon of the most active trading being on the FNMA40 bond in the 102-103 price range; for various technical reasons, there was simply almost no market for the FNMA35 bond at the time, and so the market couldn’t look down in coupon to that bond. So our tweets during a period like that would tend to reflect prices in that 102-103 range rather than the 101 range we would normally target. Similarly, later in 2010, the FNMA35 bond did develop a market and became the “active” coupon of choice; after a while, the FNMA40 bond returned to prominence, but many lenders were still quoting rates based on the FNMA35 bond in hopes that it would experience a resurgence, so we continued to quote the FNMA35 bond for a while even though the prices were in the 97-100 range.)

  Regardless, we always show our borrowers all of their options in terms of buying down rates, and help them calculate their return on investment to figure out whether paying anything to buy down their rate does make sense for their particular situation.

Possibly related posts (automatically generated):

1. Why You Can’t Predict Interest Rate Movements
2. Listing Price
3. Mortgage Market Update 7/24/09