Rates have been climbing steadily since Thursday March 25th and have jumped again today for a total increase in the past week of .25%. That adds up to an increase of about $30 per month on a $200,000 loan. Not the end of the world but probably not the last of the increases to come.

The big question is will the end of the Fed MBS buy back policy drive mortgage rates up due to the lower demand for the security. As the normal secondary market for mortgage bonds is virtually non existent, it remains to be seen what will happen to mortgage rates.

No one ran out to buy a house last week just because rates dropped.  Those smart home buyers were in the market already and were able to take advatage of the drop in rates when they were ready to apply for their mortgage.  But the trend in rates is down and housing is more affordable so more people will start to enter the market which is good for the economy.

As far as the rest of those applications, most were from people who already applied to refinance or buy a home and had locked in a rate of about 6%.  They just went out and made a new application for the same transaction so the net increase in loan applications will be 0.  Many of the applications will also fall apart due to credit or appraisal issues so it remains to be seen how much new business will result from those applications.

Investors are still worried about the safety of mortgage bonds so more investor money is going into government backed treasury bills and treasury bonds.  There is currently about a 300 basis point spread between the rate of 10 year treasury bills and the rate of mortgage backed securities.  Normally this spread is about 150 basis points so the difference we are seeing today is evidence of investor fear.

Until stability returns to the housing market and investor confidence improves regarding mortgage backed securities, the Fed will be hard pressed to coax mortgage rates lower.