Published by Bank Business

Selling GSE-eligible mortgages is looking considerably more profitable than it has in years. Lender profitability has skyrocketed according to the Mortgage Bankers Association (MBA) performance data and our experience at ALM First Financial Advisors, helped by both a surge in lending volume and the Fed’s Federal Open Market Committee (FOMC) agency mortgage-backed securities (MBS) purchases.

The Fed’s quantitative easing actions associated with the Covid-19 pandemic have led to a major shift in interest rates. According to Freddie Mac’s Primary Mortgage Market Survey (PMMS), the going rate for a 30-year fixed is 2.67%. That is a record low for the entire history of the PMMS index, which has tracked mortgage rates since 1971. At the beginning of this year, this same rate was 3.72%, which has declined over 100 basis points in less than a year.

Despite the decline in interest rates overall, the price paid for mortgage loans have seen an almost equally drastic increase in price (an average two-point premium from the pre-pandemic levels). Figure 1 shows the Fannie Mae price for a 30-year fixed mortgage loan with a coupon equal to the prevailing primary rate at that time.

As Figure 1 shows, what started the year as a mortgage loan with a 3.72% coupon worth roughly 101.7 in price is now a 2.67% coupon mortgage worth about 103.7 in price. In other words, the price of a par mortgage has increased a full two points. Our experience at ALM First has seen lenders even topping 105 on net gain-on-sales, since pricing and going mortgage rates vary based on lender and product type.

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