re: rates & comments of Per Gunnar Berglund

["RLEPRE" <rlepre@xxxxxxxxxx>]

I'm just a mortgage guy.  When I read many of the postings on PKT I
see some significant stretches of the imagination.

There is not a large difference between long term and short term
rates right now.  Today the yield on 3 year notes is 5.90% the yield
on the 30 year bond is 6.30%.  This is abnornmally small,  A year ago
the spread was 60 basis points.  My point is that there is not a
large spread in long and short term rates.

In the mortgage business borroers go with "long paper" when 30 year
fixed rate loans are under about 8.25% (this is with no "discount
points" or, in effect, par to the borrower).  When 30 year fixed rates get
higher than that borrowres opt for intermediate term ARM's (fixed for
5 or 7 years).

Instability in interest rates is not at all related to the decision
to go "short" paper or "long" paper.  Instability is tied (at least
for the past 5 years) soley to the perception of inflation. The key
word is "perception".

I do not think that a resort to short term financing will create
instability in the long paper market by making it "thinner".  This
market is so "thick" that it is never "thin".  The supply of money
that is available is gigantic compared to the demand and mortgage
rates are never impacted by the concept of "supply and demand"
because. for all practical purposes the supply is limitless.

I wish to remind PKTers that it is axiomatic that the spread between
the lond bond and mortgage rates rises when there is a belief that
rates will continue to fall.  This is becasuse mortgae backed
secutities must pay a premium not only for risk but also for the
interruption of cash flow ctreated by the early repayment of
mortgages when refinanced to lower rates.  (We mortgage brokers are
the sinister force operating to encourage early payments due to
refinancing.)

Dick Lepre
HomeOwners Finance Center
RLEPRE@xxxxxxxxxxxxxx
http://www.homeowners.com
(415) 861-1142 x 222
(415) 241-1445 fax