Yeah, that was my reaction too. But ... why not? It still seems possible. I mean, between banks they definitely have to mark it to market in order to sell the mortgage, so they would take a big hit to sell when interest rates go up.
So, why can't you put on a funny hat and glasses, get a new mortgage at the higher rate, and then go buy your existing one at a discount?
If you’re “trading” the mortgage, you mark to market, but if you hold it for investment then you don’t (this is driven by bank capital requirements - if I need to go raise capital every time interest rates went up that would create huge problems (despite the credit staying the same (if not improving))
So, why can't you put on a funny hat and glasses, get a new mortgage at the higher rate, and then go buy your existing one at a discount?