Portfolio lenders and investors in mortgage securities both have an appetite for 10-year fixed-rate mortgages.
In fact, demand for this type of paper is such that Fannie Mae and Freddie Mac pay 15 to 20 basis points more for 10-year mortgages than equivalent 15-year paper, according to secondary-market executives.
"If I'm selling 6.25% whole-loan pass-throughs, I'll get 100.64 or so for 10-years and 100.46 for 15-years," said Paul Miller, senior vice president at Crossland Mortgage Corp., Salt Lake City.
Favored by Consumers
Julie Bone, a product manager at Freddie Mac, thinks that investor appetite for shorter-term paper is driving the appetite for 10-year fully amortizing mortgages.
Some bankers also believe that 10-year, fixed-rate mortgages have different prepayment profiles that may make them more attractive than longer term securities.
The repayment schedule has the effect of making holders of 10-year mortgages less interest-rate sensitive and less likely to refinance, according to Joseph Krul, chief financial officer of Standard Federal Savings Bank, Troy, Mich.
More than 15% of Standard Federal's mortgage originations are 10-year, according to Mr. Krul, and all of that is kept on the company's books.
No Strong Secondary Market
NationsBanc Mortgage Corp., Dallas, offers a jumbo 10-year, fixed-rate product despite the fact that there is no well-established secondary market for the paper. "Our parent, NationsBank Corp., takes the paper on its own books. Because of its shorter duration, it fits well in the balance sheet," said Daniel Hellams, senior vice president of NationsBanc Mortgage.
Fannie Mae seems to like 10-year mortgages for its balance. sheet as well. So far this year, the secondary-market company is on a pace to buy for its own books over 10 times more 10-year paper in 1993 than in 1992, according to Dan Nicoll, director of product acquisition at Fannie Mae. Fannie also buys odd lots of 10-year mortgages that are then securitized and sold to investors.
Freddie Mac does not purchase 10-year mortgages for its own books, but has seen an increase in the amount securitized in the past several months, according to Ms. Bone.
Though this type of product still represents only a minuscule portion of Freddie Mac's total volume, the recent percentage increase has been steep, according to Ms. Bone.
No matter how willing investors are to buy these mortgages, the market depends ultimately on the consumer's willingness and ability to undertake 10-year mortgages.