Mortgage rates are finally moving lower today due to two separate beneficial forces.
First, 10-year bond yields are falling due to “very good and productive conversations” with Iran.
This according to President Donald Trump, who said as much on his Truth Social account.
In addition, there is word of new MBS buying from Fannie and Freddie, more than two months after the administration pitched the idea.
Taken together, mortgage rates could see to a nice move lower today and beyond if it sticks.
Trump Assuages Concerns in the Middle East, Pushing Bond Yields Lower
As noted, Trump sought to calm markets with his post on Truth Social, noting that the United States had “very good and productive conversations regarding a complete and total resolution of our hostilities in the Middle East.”
It came after tensions were running higher than ever, leading to a massive spike in oil prices and surging bond yields.
That resulted in lower oil prices and bond yields, with oil back near $90 per barrel and the 10-year yield down to as low as 4.30% on the day.
However, yields have already bounced higher and were last seen around 4.37%, illustrating just how fragile this whole situation is.
While the markets initially cheered Trump’s truth post, everyone is also weary. We’ve seen this movie before.
It’s one thing to say things are moving in the right direction and another to actually see real progress.
But in the meantime, it at least halted rising bond yields, which were pushing toward 4.50%.
So if nothing else, perhaps it stops mortgage rates from going any higher, at least for the time being.
Fannie and Freddie Finally Buying MBS?
The other piece of positive news for mortgage rates was a Bloomberg report that Fannie Mae and Freddie Mac are “placing sizable orders to purchase mortgage-backed securities” (MBS).
This seems to be related to the news in early January when Trump “ordered” the pair to buy MBS to bring down mortgage rates.
The increased demand for MBS improves mortgage rate pricing via tighter mortgage spreads.
The spread is the difference between what government bond investors demand and MBS investors.
MBS investors require a premium for taking on the risk of a mortgage versus a government bond, mainly via prepayment risk due to home sale or refinancing.
Spreads were super wide in 2023 when QE ended and the Fed stopped buying mortgages, rising to around 325 basis points (bps).
Historically, they’re around 170 bps above the 10-year bond yield, so if the yield is 4.30%, that means the 30-year fixed mortgage should be priced around 6%.
Recently, they’ve widened again thanks to the uncertainty in the Middle East, climbing from around 190 bps to nearly 220 bps.
That combined with higher bond yields has pushed mortgage rates from sub-6% levels to around 6.50%.
This move by Fannie and Freddie is likely intended to bring spreads back in and push mortgage rates lower in the process.
How much lower they can get them is another story. And arguably they wouldn’t need to do the MBS buying in the first place if there wasn’t a conflict in the Middle East.
Can We Get the Low Mortgage Rates Back Before Summer?
Prior to the strikes in Iran at the very end of February, the 30-year fixed mortgage was the lowest it had been in about 3.5 years.
It was below 6% for the first time since late summer 2022 according to both Freddie Mac’s weekly rate survey and Mortgage News Daily’s rate index.
And it appeared to be absolutely perfect timing for the start of the spring home buying season…
But instead of prospective home buyers reaping the benefit, mortgage rates swiftly reversed course and now they may stay elevated throughout spring and even beyond summer.
The only possible way out of that nightmare scenario is if there are truly meaningful steps toward a resolution in the Middle East.
Stay tuned!
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.