Orange County’s subprime mortgage lending industry may be breathing a tentative sigh of relief.
The yield on a 10-year Treasury bond rose back above 4% Thursday, after dipping below the key benchmark the day before.
Long-term rates have been holding steady or falling for weeks, while short-term rates are rising.
Subprime lenders, who make loans to people with imperfect credit, fear a narrowing gap between the two types of rates.
The trend has played out in recent earnings from Irvine-based New Century Financial Corp., Calabasas-based Countrywide Financial Corp. and Kansas City, Mo.-based NovaStar Financial Inc.
Subprime lenders sell their loans to investors as mortgage-backed securities. If investors can receive a comparable yield from a short-term bond, they’ll take it, since those investments are seen as less risky.
The three-month treasury is at 2.5%
The Federal Reserve Bank notched up a key short-term rate to 2.5% earlier this month, its sixth hike since summer.
Subprime lenders are paying higher returns to investors. Their bonds’ yields are tied to a global short-term rate known as the London Inter Bank Offering Rate, which is on the rise.
Three-month LIBOR is at 2.79%, up from 1.13% a year ago.
