At face value, the bonds that underlie the mortgage market didn’t sustain too much damage today. If there was nothing else to inspire lender rate changes, we might not be too much worse vs yesterday. Unfortunately, there is an absolutely massive source of motivation that unexpectedly burst on the scene last night. If you’re not already up to speed on it, READ THIS.
As far as today is concerned, rates got torched. This is no surprise. Regulators just instantly doubled the fees they charge to provide guarantees for the mortgage market. Lenders will be forced to pay those fees on all loans that are already locked. Consumers will foot the bill for everything else.
Strikingly, the pull-back from lenders is much bigger than the 0.5 points imposed by the GSEs because of the way the announcement was rolled out. Mortgage lenders don’t like surprises, and they don’t like suddenly being forced to pay hundreds of millions of dollars they hadn’t budgeted for. When that happens, they are going to raise rates to offset the newfound losses. And that’s exactly what they did.