Spread sits at over 300 bps. 

A coalition of trade associations — including the Community Home Lenders of America (CHLA), National Association of Realtors (NAR), and Independent Community Bankers of America (ICBA) called on the Administration to reduce the historically large spread between the 30-year mortgage rates and 10-year Treasuries. The trade groups noted that the spread sits at over 300 basis points (bps) compared to the historic norm of about 150 bps. “Action is critical to address homeownership affordability and lending challenges and reduce impediments for servicers to loss mitigation efforts to keep defaulted borrowers in their home,” CHLA, NAR and ICBA wrote in a letter to Lael Brainard, director of the National Economic Council, and Janet Yellen, secretary of the Department of Treasury. To that end, the CHLA, NAR and ICBA urged that the Federal Reserve shift its policy to maintain its stock of mortgage-backed securities (MBS) and suspend runoff until liquidity and the spread between the 30-year fixed rate mortgages and 10-year Treasury stabilizes. Since the central bank’s campaign to tame inflation began in March 2022, the Fed has allowed up to $60 billion a month in Treasury securities and $35 billion in MBSs to mature and roll off from its holdings to reduce its balance sheet. Because the Fed’s holdings are constantly reduced by runoff from loans paying off and paying down, the Fed should at a minimum, be buying MBS to offset the runoff, the trade associations urged. “Renewing activities to support demand for 30-year MBS – and reducing the current artificially inflated 30-year MBS yields – will not undermine the overall impact of the Fed’s actions to increase short-term rates and combat inflation. Likewise, MBS bought at current 6% coupons would be much easier to liquidate than 1% to 3% coupons purchased two years ago,” the trade groups wrote.

Source: HousingWire