When you read our MBS Commentary is it like trying to read the Dead Sea Scrolls?

Don't be shy. You can't learn new things if you don't ask questions. We are building the foundation for what we consider to be the definitive MBS information/educational resource. We have developed a nice long list of topics but feel like we may have hit a writers block.

Tell us where you get lost. Tell us what concepts you just cant grasp. Tell us what makes absolutely no sense to you.Help us think out of the box. Go nuts but keep it on subject please!

I still don't understand this whole "spread" thing you guys keep talking about.  If we are so opposed to looking at treasuries to gauge mortgage rates, why do we talk about them every day?

Your post on the blog today was a great mix of technical verbage followed up by easy to understand examples. 

I get that 100 is par...I get that buying is good and when we maintain a constant floor or break through a ceiling, then things are good...

but I suppose where I get lost is being able to look at the various pricing on the various coupons (5.0 vs 5.5)...and how to explain better or understand the 99...101, etc...I get that 99 is basically 99 cents on the dollar...just seems like I'm missing something...at 101 I'm overpaying???

and GNMA is Freddie Mac, right???

Wish I had more time to chat in the war room...

Prior to the past few days, too, it seemed like the MBS commentary section really wasn't giving too much advice on direction that we could be heading...I was assuming that maybe it was being more discussed in the War room...has that been the trend and is the site going that way???

What I don't get is how do we have rates so low when logic would tell you that investors are going to eventually price to risk once the government stops buying MBS and bonds...?

I also do not get the direct relation ship between the bond pools and the MBS pools and how the bundling of loans works...?

I also do not get why investors are satisfied with a 5 - 6 % return on there money when you would think with all the risk oput there that a typical investor would want more of a return on their investment...?

Thank you, 

nateg:

What I don't get is how do we have rates so low when logic would tell you that investors are going to eventually price to risk once the government stops buying MBS and bonds...?

What Risk?  The risk is leftover from meltdown-inducing loans.  We don't originate those any more.  property values are declining.  lending standards are tightening.  compared to other rates, mortgages are at an all time high.  Not only is plenty of risk still priced in, but as we forge onward in this era of MBS market redefinition, risk becomes easier to price.  The government money is just a stop gap.

 

I also do not get the direct relation ship between the bond pools and the MBS pools and how the bundling of loans works...?

I'm not sure what you mean by "bond pools."  The rest of the answer is a bit more detailed than we have space for.  Have you seen the MBS Basics on the top right side of the MBS Blog?

I also do not get why investors are satisfied with a 5 - 6 % return on there money when you would think with all the risk oput there that a typical investor would want more of a return on their investment...?

Do not think about mortgages in terms of rate when it comes to "cheap" vs. "expensive."  Think about them in terms of SPREAD otherwise known as the difference in yield between MBS and treasuries or other benchmarks such as swaps.  In terms of spread, 5-6% right now is still near all time wides, so lenders are quite satisfied with that considering it is SOOO much better than 4.875% was in 2003.  It's a much better return on investment at these spreads compared to what that would yield in a stable market.

 

Hopefully this provides a little more clarity.  Let me know if it doesn't

Thank you, 

Could you explain how rates between the coupons are priced with lenders.  For example 5.25%. Since we're currently seeing coupons improve or worsen differently if we know higher coupons are priced at a discount or lower coupons are priced at a premium we might better understand what rate changes are coming.

Hope that made sense.