Consumers, This why you should consider a mortgage through a local mortgage bank or Credit Union rather than one of the big banks: 

"In September 2011, banks were making mortgages with an interest rate of 4.1 percent. They were then selling those mortgages into the market in bonds that were trading with an interest rate, or yield, of 3.36 percent, according to a Bloomberg index…That 0.74 percentage point 'spread' was close to the 0.77 percentage point average since the end of 2007. Banks were taking roughly the same cut on the sales as they were in previous years. But something strange has happened over the last 12 months. That spread has widened significantly, and is now more than 1.4 percentage points. The cause: bond yields have fallen a lot more than the mortgage rates that banks are charging borrowers."

 

http://www.fiercefinance.com/story/why-arent-mortgage-rates-declining-faster/2012-09-19?utm_medium=nl&utm_source=internal

How about the fact that the banks can borrow at .01% from the government and make loans at 3.50%.... this is how some of the REITs make money.

Milton Wynne

Forrest NYC . . . . . . . . Flag .. This is a poorly researched article that draws flawed conclusions to propagate the already banal belief that banks are evil from facts that point an entirely different direction. Truly a symptom of a public that is predisposed to believe anything negative they read about banks. If mortgage origination were so abnormally profitable, as the author suggests, banks would be inclined to increase pipeline volume and lend into the widened spread. Despite this, market data show that banks haven't relaxed credit standards and gross issuance in the mortgage market has remained stable. What HAS changed is mortgage refinancing rates. As interest rates come down, consumers turn up to lock in lower interest payments. Accordingly, the refi index has nearly doubled since the beginning of 2012. Refinancing increases prepayments, which reduces the option-adjusted spread of the bank's portfolio vs. government yields. Put that together with the wild fluctuations in the durations of bank portfolio, which may prompt the need for convexity hedging in the rates market, you add about 10-15bps to the primary-secondary mortgage spread to cover these risks. Moreover, the net supply of securitized products was -$315 billion even before the Fed's QE3 announcement that it would spend $400 billion+ acquiring MBSs. Simply put, the Fed is chasing supply that doesn't exist. The goal of the Fed program is to reduce the size of the Fannie and Freddie portfolios and reduce the size of the GSE market.

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