"Consider what's happening right now: If long-term yields track policy rates downward, we'll likely see lower mortgage rates, easier refinancing opportunities, more affordability for new buyers, and an initial uptick in housing activity. But here's the nuance many overlook: mortgage rates aren't set solely by the Fed. Lenders influence how much of the spread between mortgage-backed securities (MBS) and Treasuries is reflected in borrower rates to cover costs, manage risk, and maintain profitability."
"For lenders: When the curve normalizes, your ability to lend profitably improves. You borrow short (via deposits and funding) and lend long (via mortgages). A healthier spread restores the incentive to lend and expands credit availability. For the economy: Normal spreads signal that recession risks may be easing and monetary policy is shifting toward a more balanced stance."
Macroeconomic forces and Fed policy shape the overall rate environment, but lenders retain direct levers to affect borrower affordability. The spread between mortgage-backed securities (MBS) and Treasuries determines how much of funding costs, risk management, and profitability get passed to borrowers. If long-term yields move down with policy rates, mortgage rates and refinancing costs can fall, improving affordability and housing activity. A normalized, healthier spread restores incentives to lend by improving net interest margins because lenders borrow short and lend long. Current pressures such as tariffs, inflation risks, and stretched consumer budgets create near-term challenges and opportunities for proactive lenders.
Read at www.housingwire.com
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