<p><img alt="" src="http://img101.mytextgraphics.com/photolava/2007/06/07/30yrjune72007-1i9mea9x.jpg" /></p>
<p>Wow I made a very easy process sound very difficult. </p>
<p>This is the six month chart for the 5.5% fannie mae thirty year mortgage bond. This is exactly what lenders look at when they come out with their rates for the day. Of course they probably changed them for the worse later today.</p>
<p>It works almost exactly like a bond in that when the price goes down the rate goes up. The difference is from what I know is if it is at par 100 fannie mae doesn't pay the lender for the loan. So the lender would have to charge fees i.e. and origination fee to make money on a loan that is at par. If it is above par say 101 fannie mae would pay the lender 1% or 100 basis points of the loan balance and if it were below par 99 the lender would have to pay fannie mae 1% of the loan balance. So right now it costs the lender 2.78% or 278 bps to get a 30 year fixed loan at a rate of 5.5% because it closed at $96.22. 6% costs 178 bps and 6.5% pays 88 bps. Plus they need to make money so it would be even higher for the borrower. </p>
<p>For example a lender on somehow still have access to the rate sheets with the acronym GP has the following rates:</p>
<p>5.5% is not even on the rate sheet but 5.875% is and it costs 225 bps, 6% costs 162.5 bps and 6.5% pays 62.5 bps.</p>
<p>The are several variables in pricing a loan but as you can see the chart is a fairly good gauge.</p>
<p>awgee - No offence but when I was in the mortgage business I learned very quickly that Bill Gross was wrong a lot. It got to the point where if he said rates would go down I would lock people in and when he said they were going up I would tell people to wait. I swear I never once got burned by it either. However looking at that chart above says that this time he could be right. </p>
