Mortgage rates do not always move in lock-step with Treasury rates. Mortgage rates will often move independently from Treasuries, depending on the overall supply and demand for mortgage-backed securities.
Secondly, there is a good by-product of the excessively stringent underwriting guidelines – investors are realizing that mortgages are very safe bets. This increases demand for mortgage-backed securities and reduces rates.
In the second quarter of 2012, loans funded by Freddie Mac had an average LTV of 68%, and an average Credit Score of 762. These loans are of astoundingly high quality, and the risk of default for such loans is virtually zero.
Investors realize this and this partly why mortgage rates are improving relative to Treasury rates. For strong borrowers, very stringent underwriting guidelines are a good thing, even though they are a hassle to deal with.
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