Concern over massive repayments of performing A-paper mortgages seem to be fueling the recent rate spike in fixed rate mortgages. A 45 basis point rise in rates recently is a huge increase in such a short period of time. A recent discussion of these events on CNBC indicated that large banks were selling many prime mortgages and the increase in rates may in part be geared to reduce early prepayments. Prepayments usually come in the form of refinancings and there is a correlation between actual rates and expected prepayment volume. Replacing higher yield with lower yields certainly places additional stress on lenders' bottom lines amid the higher delinquency rates with the higher risk mortgages. Prime mortgages are performing very well and the incidence of delinquency has remained relatively static over the past decade.
Will rates subside? Probably they will. But it may take some time to get down to the lower rates we saw in mid-January. And if they do return to that level, those folks that are waiting for them will pounce quickly. This also holds true for VA & FHA loans. Those have a slightly higher delinquency rate, but the streamline programs they both have available mean quick turnaround times when the time is right. Borrowers will need to act quickly, though, because you never know if there will be another rate spike to choke off refinances.