The option for homeowners to refinance their mortgages makes mortgage-backed securities an inferior investment option. So investors will buy them only if they offer a premium over treasury bond interest rates. That is the wholesale mortgage spread.
At the retail level, some spread widening would be expected due to the mortgage originator’s interest rate risk. The borrower gets an interest rate quote, but then walks away if rates fall, leaving the first originator in the lurch. But if interest rates rise, that borrower holds the originator to the quote. In a more volatile interest rate environment, both spreads increase.
If America could play a 400 y/o LehmanBrothers whale belly up, not surprised a siliconevalleybank baby shrmp grilled.
This month the Silicon Valley Bank (SVB) collapsed and hot on its heels was the Signature Bank in a grim reminder of the US banking and financial sector rout in 2008 mostly due to the sub prime mortgage phenomena. But people never learn
The loan portfolio of SVB was in the tech sector .Emboldened by the fabulous revenues accruing to digital technology companies in the COVI-19 or pandemic era investors flocked into the digital sector. Startups mushroomed & without conducting due diligence SVB doled out loans
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