Mortgage Bond Pricing Isn't Available to the General Public.

Unlike quotes on other bonds, particularly bonds, notes, and bills issued by local, state, and federal governments, mortgage bond quotes aren't readily available to the public. There is no Web site where one can go to get current mortgage bond pricing. There are several Web sites that lenders can subscribe to that provide bond pricing, but secondary departments typically get their mortgage bond pricing directly from the bond traders or securities firms.

This information can get pricey; depending upon how often a lender wants to be updated on bond prices, it can cost $5,000 or more per year to have access to those data. There are companies that put people on the trading floor to follow bond buying and selling and relay that information to their customers.

Lenders don't want their consumers to have access to the same live data that they have. If they did, and there was a sudden turn toward the negative, consumers could call their loan officer and lock in their interest rate immediately, before the lender has had time to make an interest-rate change. If a consumer gets quoted 7.00 percent and locks in the rate as rates begin moving to 7.25 percent, the consumer beats the lender by 1/4 percent.

Sounds great, doesn't it? Unfortunately for you, that scenario will rarely happen—unless, of course, you're in the stock or bond business and have access to such information.

Mortgage Rates Aren't Tied to the 10-Year Treasury Note or the 30-Year Treasury Bond.

You will hear from various sources, incorrect ones, that mortgage rates are tied to the 10-year Treasury note or the 30-year Treasury bond. In fact, one hears or reads that information so often that it's taken for a fact. But it's not the case. Lenders don't base their rates on the 10-year Treasury note, or on any government bond. Period.

Okay, there will be some similar moves. Investors who like 10-year Treasuries or other longer-term bonds and those who invest in mortgage bonds are probably kindred spirits. The theory behind buying a 10-year Treasury is the same as that behind buying a mortgage bond. It's a flight to safety when there's economic trouble ahead.

But there is no direct correlation. Saying that mortgage bonds and Treasuries move in parallel is stretching it. If your loan officer—or anyone else, for that matter, but especially your loan officer—tells you that rates follow the 10-year or 30-year Treasury, then you need to either politely tell him that that's not correct or find another loan officer you can trust. Why would a loan officer tell you something that's simply wrong and not know it? Wouldn't you want someone who knows that? Is there something else the loan officer might be wrong about?

Mortgage bonds are fixed instruments, so they're tied to fixed rates. What are adjustable-rate mortgages tied to, and how are they set? They're set in the very same way, by market forces. We'll discuss the various types of mortgages in Chapter 7, but adjustable rates work the same way that fixed rates work—lenders price them off of the exact same index.