Here's an interesting snippet.

In business, everything that generates additional income is fair game.
When we make our monthly mortgage payment, it really doesn't matter to us what happens as long as they credit the account and do so in a timely manner - right?

Our payment may be principal and interest, or interest only.
We may have an impound account that pays for our taxes and Insurance when they come due.
We just write the check and send it in the mail.
When it gets to the "Servicer" they open the envelope and deposit the check.
If there is an impound account, they'll seperate that money into a separate account for holding. I always figured the rest was then simply applied to the loan account - end of story. But I found this in my inbox today explaining what then really happens.

What happens to a borrower's payment when they send it in every month? Sometimes servicers/investors will separate the principal and interest amounts, and if a company does this enough two new securities can be created: and IO (Interest Only) and PO (Principal Only). Stripped MBSs have been around for twenty years. Each stripped security receives a percentage of the underlying security principal or interest payments. For example, the cash flow of a 6% pass-through can be used to make two new stripped securities, one with 4% coupon and another with 8% coupon, by directing more of the interest to the security with higher coupon. Stripped securities can be partially stripped, meaning that each investor receives some combination of principal and interest payments, or completely stripped. Both IOs and POs show substantial price volatility in an environment of changing mortgage rates.


Mortgage wise today: Bonds are once again up for the 3rd day in a row.
Not a good day to lock a loan, or for that matter get a price quote.
Be careful out there.

After Friday's worsening and yesterday's market holiday, where are we? So far this morning most A-paper prices are worse than Friday afternoon by about .125. (This certainly helps argue for the usual procedure of making your rates & prices worse by .125-250 when the market is closed!) There is no news today, so what we're seeing is some follow through from Friday's strong employment revisions to August and July. And if anyone focuses on the unemployment rate, it dropped to 4.6% which is the lowest level since June when the 10-yr yield was above 5%.