Mortgage information

[The Buddha]

Can someone enlighten me ...
I have heard that as mortgage volume goes down interest rates go up. Is that right and why
Cool.
Srinath.

[Stephen072774]

cause mortgage companies gotta get theirs

[trumpetguy]

It's the old chicken/egg story -- do fewer people get mortgages when rates are higher, or do rates go up when fewer people get them?

Either way, the mortgage company gets theirs...

[Dr. Love]

Chicken/egg?  I think it's more likely the result of some stochatic process at work

[Jake D]

Usually the Fed raising interest rates doesn't have a direct effect on mortgage rates.  But in any particular market, there are x amount of buyers.  Once those buyers take advantage of the low interest rate, the only people left are the renters, who we'll call y.  The x people in the market own homes and the y people still rent homes.  So the mortgage company gets fewer clients.  They need to keep their margins up so they raise rates.  The higher rates keep the y people out of mortgages until they are absolutely ready.  And the x people will usually wait a couple years, rack up some stupid debt, and refinance or get a mortgage.  Eventually the mortgage company starts to lower rates to get business and that's when the next wave of home construction and purchases begin.  Then the y people become x people and the rates drop until all the x people are once again used up.  Right now, there are a lot of y people out there.  So it is better to be a landlord than a mortgage broker or real estate agent.

[The Buddha]

No guys, all this is not it.
Its got something to do with the fact that mortgage is a derivative.
I almost know it, but I cant put it in words.
FED has very little to do with it, but, fed lowering rates totally rocks the sub prime, cos they borrow short term to cover the long term, and the expectation is sub primes will get out and refi into prime soon. So borrowing short term, to cover long term is fine, you make up in higher interests and in fees.
In any case its related to the bond markets and they run exactly like you'd expect supply and demand to run, and mortgage is the derivative that seems to run counter to it. but well, this is a very vague explaination. There is a much more precise way of putting it.
Cool.
Srinath.