SDR, if you read your own post starting this thread, you will indeed find yourself saying “rates are going up”, but it doesn’t really matter because we both agree that it’s more complicated than that. Some rates are going up and some are going down. We’ll see how that all plays out.
I agree with your comment that the pricing of securitized loans drives consumer loan pricing. In my job, I review investments that include a fair number of securitized loans and their derivatives, so I have a general familiarity with them and how they compare against other bonds. But my knowledge of the underlying loans is limited, because I only know them indirectly from my exposure to the securities.
I should have added another condition to my benchmark loan for Class 2, namely level fully amortizing payments at fixed interest rates.
For Extra 1, I should also have added the expected (non-panic) level of extra losses on conforming loans. This shouldn’t grow much in the near future. FNMA has a choice: Keep the extra rate charged to mortgageholders for future defaults low, based on non-panic long-term non-market asumptions, or lose the favor (and guarantee) of the govt. Only one right answer. Could go higher later if the housing market goes really bad for a few years.
