The prevalence of specific, quantifiable deal terms offers a unique window into the market's mood. Rising structural protections for lenders or increased flexibility for borrowers act as an early warning system, reflecting anxieties and optimism before they appear in traditional economic data.

The plan to buy mortgage bonds is not a direct solution for homeowners but a form of money printing (QE). This move likely props up banks holding increasingly unattractive mortgages as housing prices are pushed down, effectively bailing out financial institutions rather than individuals.

Even with multiple expected Fed rate cuts, mortgage rates may not fall significantly. They are not directly tied to the Fed funds rate, and other factors are needed to bring them down enough to improve housing affordability.

The Fed's plan to reinvest maturing mortgage-backed securities (MBS) into Treasury bills is a stealth liquidity injection. The US Treasury can amplify this effect by shifting issuance from long-term bonds to short-term bills, which the Fed then absorbs. This is a backdoor way to manage rates without formal QE.

The bond market is a better indicator for mortgage rates than the Fed. The current spread between 5-year and 10-year Treasury notes implies that investors expect the 5-year note's yield to be 100 basis points higher in five years than it is today. Since mortgage rates are closely tied to these yields, this suggests a potential for higher, not lower, mortgage rates in the medium term.

The gap between existing mortgage rates (under 4.25%) and new rates (over 6.25%) is over 200 basis points. This spread, which disincentivizes homeowners from selling, has persisted for three consecutive years. Historically, the gap only exceeded 100 basis points for a total of eight quarters over the past four decades, making the current situation a major anomaly.

In today's hyper-financialized economy, central banks no longer need to actually buy assets to stop a crisis. The mere announcement of their willingness to act, like the Fed's 2020 corporate bond facility, is enough to restore market confidence as traders front-run the intervention.

With major US policy variables like tariffs and fiscal stimulus now more defined, investors should shift focus from predicting policy direction to analyzing how businesses and consumers react to these established policies, as this will drive market outcomes.

Morgan Stanley analysts argue that mortgage rates follow the 5- and 10-year Treasury yields, not the Fed Funds rate. As evidence, they note that while the Fed has cut rates by 100 basis points over the past year, the average mortgage rate has actually increased by 25 basis points during the same period.