Seasons Greetings from Nom de Plumber: The Primary-Secondary Mortgage Spread

ndp  Nom de Plumber is a Nom de Plume.


Start here: Fed Flummoxed by Mortgage Yield Gap Refusing to Shrink: Economy

An idea if the New York Fed wants to save four points on its QE purchases AND lower the primary mortgage rate:

Open up a direct retail lending office at 33 Liberty Street.   (A good way to recycle the existing Maiden Lane SPV’s.) 

Yes, that would kill off the embedded IO’s in the huge SOMA portfolio………just a small technicality.
Stated differently, if the Fed wants to see what is keeping a wide primary-secondary spread, it could see who has been aggressively buying TBA’s way ABOVE PAR.

Look in a mirror.


Thank you. 

2 thoughts on “Seasons Greetings from Nom de Plumber: The Primary-Secondary Mortgage Spread

  1. NDP has a further thought:
    If banks ramp up origination capacity, and later interest rates rise and loan volumes fall, that physical overhead is temporary, possible to run off via workforce reductions and office space disposals.

    However, the real overhead which is non-temporary AND beyond originator control is representation-and-warranty repurchase guarantees, now a permanent exposure to both initial underwriting faults and unforeseeable future borrower stress (unemployment, home depreciation).

    Whether the Fed admits or not, the primary-secondary spread actually represents an insurance premium which originators rationally demand for open-ended economic and regulatory tail risk, and is not some unexplainable “free” profit. Thank you.

  2. Pingback: week5 | Mortgage News Clips

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