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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127236  
Subject: Re: 30 FRM cheaper now than 5 yr ARM Date: 9/25/2012 11:42 AM
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From an investor's standpoint, why would you want to encourage the borrower to lock in their extremely low rate for 30 years as opposed to a 5 year lock and then variable by offering the 30 year at a lower rate?

Because the market for mortgages is no longer a free market.

We are down to basically one investor in mortgages: The Federal Reserve Bank. And being a quasi-governmental agency, their decisions are not driven by what is best financially. Their decisions are mainly driven by their dual mandate to maintain both full employment and price stability.

For the time being, they've decided to heavily subsidize mortgage interest rates in an attempt to prop up real estate prices.

Traditional logic no longer applies to the pricing of mortgage loans.

--Peter
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