The new residential development, built along the canal near the Morkelm River, will be seen on May 22, 2023 near Stockton, California.
George Rose | Getty Images
Mortgage fees have risen sharply this week as investors sell US Treasury bonds at a rapid pace. Mortgage fees continue casually at the 10-year Treasury yield. Some speculate that foreign countries may be dumping the US Treasury Department in retaliation for President Donald Trump’s sweeping tariff plans.
But there are even greater concerns for both mortgage investors and the very important spring housing market. What happens if China, one of the largest holders of its agent’s mortgage-backed securities, decides to sell these holdings in response to US trade policies? And what if other countries follow?
“If China wanted to hit us hard, they could have lowered the Ministry of Finance. Is that a threat?” “They will consider pushing the lever and trying to put pressure on them.
According to Ginnie Mae, at the end of January, the foreign company owned $1.32 trillion worth of US MB, or 15% of all issues. Top owners: Japan, China, Taiwan, Canada.
China had already begun selling US MBS last year. At the end of September, it fell 8.7% year-on-year, and by the beginning of December it fell 20%. Japan, which showed profits on MBS in September, showed a decline in early December.
If China and Japan accelerate these sales further, and if other countries follow, mortgage rates will rise even further than they are now.
“I think the concern lies in people’s radar screens and is being nurtured as a potential source of friction,” said Eric Hagen, a mortgage and specialized financial analyst at BTIG. “Most investors are concerned that mortgage spreads will expand as either China, Japan or Canada arrives for retaliatory purposes.”
An expansion of spread means a higher mortgage rate. The spring housing market already has flounder amid high home prices and lower consumer reliability. Given the recent stock market defeat, potential buyers are increasingly worried about savings and work. A recent survey from Redfin found that one in five potential buyers are selling inventory and funding down payments.
Hagen said the sale of MBS by foreign companies could further surprise the mortgage market.
“I think the lack of vision for how much they can sell and their appetite for selling would scare investors,” he said.
To add to the pain, the US Federal Reserve, the leading owner of MBS, is rolling MBS out of its own portfolio as part of its efforts to reduce its balance sheet. In other times of financial crisis, like during the pandemic, the Fed bought MBS to keep interest rates low.
“This is a potential source of pressure on top of this whole conversation,” Hagen added.
