Odd Lots Why Mortgage Rates Went Up After the Fed's Big Cut
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Oct 21, 2024 
Tom Graff, CIO of Facet Wealth and former bond portfolio manager, shares insights on the unexpected rise of mortgage rates despite the Federal Reserve's cut in overnight rates. He explains the complex relationship between mortgage rates and market dynamics, including influences from the bond ecosystem and refinancing challenges. Graff also discusses how rate changes can be priced in before they happen and the factors necessary for sustained decreases in mortgage rates, emphasizing the need for clearer Fed policies.
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Mortgage Rates and Fed Cuts
- Mortgage rates don't automatically fall when the Fed cuts benchmark rates.
- The ability to refinance at any time without penalty creates a spread between mortgage and treasury bonds.
Mortgage Bond Pricing and Refinancing
- Refinancing without penalty impacts mortgage bond pricing.
- Investors demand a premium because they don't benefit from falling rates like with treasury bonds.
Factors Influencing Mortgage Rates
- Mortgage rates are determined by several factors, including guarantee fees.
- Banks consider the market price they'll get when selling the mortgage, influenced by loan characteristics.