Rate Volatility for First Time Buyer Mortgages

The downgrade of U.S. debt to AA+ by S&P has caused an enormous amount of volatility in the financial markets dating back to about the third week of July. Clearly, we’ve seen stocks fluctuate wildly. A great example was the Fed’s release yesterday that floored the market and then sent it rocketing higher at close. At the end of the day, both stocks and mortgage bonds increased in price. Stocks going higher will typically mean interest rates are heading higher and mortgage bonds going higher will typically mean that interest rates are heading lower. That conflict will sort itself out and it’ll likely be a volatile run for the next few days, weeks and months ahead. This is going to make for an interesting next few months as we evaluate state programs for first time home buyers.


Mortgage rates are significantly different if you are talking about a state-sponsored program or any other ‘normal’ program like FHA or conventional. The reason for this is that they derive their interest rates from different factors. So, if you are looking at a FHA or conventional loan, your interest rate is based on what is happening in the financial markets at that moment in time. When we have unprecedented volatility, FHA and conventional have volatile days as well. For state-sponsored mortgage programs, it is a little different. States typically sell bonds to fund these programs and they do so in large blocks periodically. This means that from day to day, that mortgage rate won’t typically change. When that pool runs dry, the state will often sell another amount of bonds and then first time home buyers would see those rates for some period of time. When states happen to raise money when money is cheap, that block is then based on a lower rate for home buyers during that period. As much as the degree of state subsidies varies from state-to-state, so too does just the timing of when the money was raised. So, there are many factors influencing differences between Michigan home buyer programs and Texas home buyer programs