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by adeelk93
2290 days ago
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I personally don’t think there’s a floor, all that matters is spread over treasuries. If we go with your 2% number, that’s the spread between the mortgage risk and the risk-free rate. If risk-free goes to -1%, then it’d make sense for mortgages to go to 1%. This is something that already happens in European countries. I don’t think there’s an inherent reason for the risk-free rate to be a positive number. On a different note, 2% default != 2% loss. Mortgages are secured by the property, losing investors only a small fraction in foreclosure, so a 2% default * 25% severity = 0.5% loss. |
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