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Generally speaking, mortgage rates tend to move in the same direction as yields on 10-year Treasury notes. But not always. Occasionally there is a disconnect between Treasury yields and mortgage rates -- especially since the credit crunch became acute 15 months ago.

We're in one of those periods of disconnect. Let's look at a couple of bond yields. There's Freddie Mac's required net yield, which is yield that investors expect to get when they bid for a mortgage-backed security. And then there's the yield on the 10-year Treasury note, which is backed by the federal government and considered free of default risk.

On Oct. 21, Freddie Mac's required net yield for loans closing within 60 days was 5.82 percent. This afternoon it is 5.82 percent. It's had its ups and downs in the intervening month, but the important thing is this: The required net yield is the same today as it was a month ago.

On Oct. 21, the yield on the 10-year Treasury was 3.7 percent. This afternoon it is 3.16 percent. The 10-year Treasury's yield has fallen 54 basis points, while the 30-year mortgage is unchanged. A banker would say that the spread -- the difference between the two bond yields -- has widened 54 basis points. That's a lot.

My guess is that this is a reflection of investors' fears of credit risk among mortgage borrowers. As the economy slows down, Treasury yields fall in reaction to the reduced prospects of inflation. Meanwhile, rising unemployment and falling house prices make mortgages riskier. Investors are reluctant to buy mortgage-backed securities, which keeps their yields up, and keeps mortgage rates up.

I ran this theory past a couple of knowledgeable people. They both agree, to a point. One says that the decline in Treasury yields is a flight-to-quality issue, as investors take money out of stocks and put money into an extremely liquid asset -- Treasury notes. In normal times, investors would stampede into mortgage-backed securities, too, during a flight to quality. But now they would just rather invest in government debt and not have to worry about squirrelly mortgage borrowers.

Another friend, a mortgage broker, lamented the irrationality of the mortgage market. Fannie Mae and Freddie Mac are ridiculously cautious now. They're digging into loan pools that are more than two years old, looking for any discrepancies in paperwork -- even on loans that have never had a late payment. Fannie and Freddie are telling the originators to buy these loans back, unless they can cure the paperwork problems (usually an achievable task).

In such an environment, it's easy to understand why investors would rather stay away from the mortgage market.

What I don't understand is this: Why doesn't the Treasury buy a bunch of mortgage-backed securities? That would cause mortgage rates to fall, and might inject some confidence into the housing finance system.

The jumbo conforming is a hybrid creature that Congress animated this year. It created a special class of mortgages in more than 220 high-cost counties. The goal was to let people take out sorta-jumbo mortgages, but at lower-than-jumbo rates.

"Some mortgage borrowers are about to get squeezed by the shrinking of something called the jumbo conforming limit," I wrote, pointing out that in cities such as Los Angeles, the jumbo conforming limit is falling, from $729,750 to $625,500, at the beginning of the year.

I left a couple of things out. One is that the jumbo conforming limits are higher in Alaska, Hawaii, the Virgin Islands and some Pacific territories. The other thing I didn't mention is that the jumbo conforming limit is going up, not down, in 30 counties. Most of them are in Virginia.

The jumbo conforming limit will rise by $66,500, to $529,000, in Mono County, Calif. It will rise by $30,200 in Blaine County, Idaho. It will advance in Currituck and Hyde counties in North Carolina, and in 26 counties in Virginia. I don't know much about Virginia geography, but I believe that the counties with rising limits are outside of the D.C. metropolis. In Arlington and Fairfax counties, for example, the jumbo conforming limit is going down by $104,250.

A three-page chart starts here. The chart is a list of all 224 counties across the country with jumbo conforming limits in 2008 or 2009. You would think someone else would have prepared such a chart before I did. Apparently no one did.

MORE ABOUT JUMBO CONFORMING: I talked to people from several banks about their jumbo conforming policies. A spokesman at Chase told me that Chase will accept jumbo conforming rate locks through Dec. 31 and honor them early next year, even if the loan falls into this gap that I was writing about. I still find this hard to believe. But I think he understood the question and he knew what he was saying.

I'm curious as to how this works out. I'd love to hear from someone in, say, Suffolk County, N.Y., who applies at Chase for a $680,000 mortgage. That amount falls into the gap: The jumbo conforming rate is $729,750 now, and it will drop to $625,500 next year. Will Chase really close the $680,000 loan next year at the jumbo conforming rate?

A spokesman from Bank of America told me something else that might interest you. He said BofA's jumbo conforming rates will drop appreciably next year. It's too late to lock a jumbo conforming loan to be closed this year, he said. But he added that this is OK, because if you can afford to wait -- if you don't fall into the loan-limit gap -- you'll get a better rate if you close early next year.

But he wouldn't or couldn't give me actual rate data. So I don't know what rate people are paying on BofA jumbo conformings this year, and what rates people are locking at for closing in January. Sure would be interesting to know ...

CURLY TAILED BANK: Feed the Pig. That's the name of a public service advertising campaign that the American Institute of Certified Public Accountants has begun. There's an associated Web site, FeedthePig.org.

The CPAs note that the savings rate among Americans ages 25 to 34 has declined, from 1.5 percent of disposable income in 1985 to negative 2.2 percent in 2005. "Now, more than ever, it's vital to educate younger adults about the importance of changing their financial habits to live within their means and save."

Absolutely. And yet ... I distinctly remember being treated better at that age than 25-to-34-year-olds are treated now. Specifically, college was much cheaper. Taxpayers, through their elected representatives, were more generous to state schools then than they are now. Some classes, I paid more for books than for tuition and fees.

A social compact was broken sometime in the 1990s, and college students are expected to pick up the taxpayers' sloughed-off burden. Today's college graduates have more student loan debt than my generation's grads had (I got my bachelor's in 1985).

While it's easy to lecture today's young'uns on the need to change their financial habits, we need to look at the political decisions that the older generations have made. The taxpayers used to make a bigger investment in higher education than they do now. Young people are expected to make up for that investment shortfall out of their own pockets. Then the older generation lectures them for going into debt.

Policymakers would like the under-34 generation to contribute to recovery in the housing market. But it's unrealistic to expect large numbers of them to buy houses when they're so burdened by student loan debt, and it's myopic to suggest that they're in so much debt because they're not as responsible as the baby boomers were.

I mean, c'mon. Don't you think it's ridiculous to hear baby boomers lecture anyone about moderation and responsibility?

Yesterday mortgage rates pipped upward around a tenth of a percentage point, but now they're back near where they were in the second half of last week. Nationwide, that means an average rate on a conforming, 30-year fixed around 6 3/8 or 6.5 percent.

FLAIL, HAIR SHIRT, ETC.: I've gotten a few e-mails from readers inquiring about the changes in the jumbo conforming limits, and I gotta confess -- I fell down on the job with this topic. I beg a thousand pardons. We'll have a more detailed article on Thursday.

Suffice to say that in the nation's most expensive housing markets -- the Bay Area, Los Angeles, the District of Columbia metro area (including the Maryland and Virginia suburbs), New York City and its suburbs and Long Island, and super-expensive resort areas such as Jackson Hole, Wyo. -- the jumbo conforming limit is going way down. This might mean that you'd better get moving on a purchase loan or refinance now. I hope it's not too late. (The prognosis is better on a refi than on a purchase loan.)

In the above-listed areas, the jumbo conforming limit is $729,750 this year, and is dropping to $625,500 on Jan. 1. You can see where this leads. Some folks' needs fall into that area between those two sums. If you're in that group, and if you want to avoid paying a high rate for a jumbo loan, you need to get a loan before year's end.

But that doesn't mean that you have until the end of the year to close your loan. Some lenders want to close on Dec. 15 at the latest. In some cases, that means you needed to have finished your application and locked your rate by Nov. 15. Which is, of course, a date in the past.

If you find the right lender, you might still have time to get your jumbo conforming paperwork moving through the pipeline. Get moving -- preferably faster than I write articles about changes in jumbo conforming limits.

THEY DIDN'T CALL: The Wall Street Journal reports today (Page C1) that Bank of America didn't talk to mortgage investors before the bank announced its plan to modify billions of dollars' worth of mortgages.

The loans in question were originated by Countrywide, which Bank of America acquired in July. A bunch of state attorneys general had filed suit against Countrywide, and BofA's mass-modification plan was intended to put an end to that legal hassle. But did Bank of America invite legal trouble from the investors who own those Countrywide loans?

Chase and Citi recently have announced mass-mod plans recently, and the federal government has jumped on the bandwagon, too. But Chase, Citi and (through the government) Fannie Mae and Freddie Mac will proactively modify only mortgages that they own. They say they're not going to reach in and change mortgages belonging to investors.

BofA went one step further, and plans to modify mortgages belonging to investors. The bank says that it has the authority to do so. Investors complain that BofA should have bought predatory loans out of investors' loan pools and made the modifications on the bank's dime.

Friday, Nov. 14
Posted 4 p.m. EST
PATERNALISM: In a blog like this one, which mixes reporting and opinion, sometimes the reporting looks like opinion. My fault, not yours. I wrote something confusing yesterday, in a post about what the feds were and weren't trying to accomplish when they revamped the good faith estimate of closing costs. I wrote:

"And then there's what they didn't do. The Department of Housing and Urban Development chose not to advise borrowers. In other words, at a time when we're going through a foreclosure crisis because people got toxic mortgages, the feds have formulated new mortgage disclosures that don't advise consumers whether they should get a certain loan or walk away from it."

And then I quoted Alex Pollock, a scholar at the American Enterprise Institute who believes that mortgage disclosures should let borrowers know if they're about to get unaffordable loans. Mind you, this is from someone at the libertarian-leaning American Enterprise Institute. When an AEI scholar thinks the government should get all paternal on us, that's newsworthy. I don't agree with Pollock (although I could be convinced), but I wanted to air his viewpoint. The above paragraph is confusing because it sounds like I'm making my own argument, when I'm introducing Pollock's.

More important, I gave a perspective that no other reporter did: I explained what HUD was trying to do, and what the agency chose not to do. They chose to reject paternalism, at a time when even some conservatives would like to see some paternalism.

Reader Michael Becker weighs in:

Are you kidding me? Since when is it the government's responsibility to advise people whether they should get a loan or not? Are people so irresponsible today that they can't determine whether or not they should buy a home or refinance it? Come on now -- life is tough and no matter how many laws are passed it will never be "fair." Whatever happened to personal responsibility?

First of all, I don't think it's government's responsibility to advise people whether to get a loan or not, although I can see where someone could draw that conclusion from what I wrote. As I said, my fault, not the readers'.

But Becker's next question -- "Are people so irresponsible today that they can't determine whether or not they should buy a home or refinance it?" -- has been answered by the mortgage meltdown. Yes, millions of people were so irresponsible that they couldn't determine whether it was wise to buy or refinance. Isn't that obvious? Even so, I agree with Becker: It's not the government's decision to make. It's a free country, and people are free to fail.

Now we're getting to the part of this blog post that's going to freak out my copy editor, as I address the role of ideology in this mess. There's no name-calling here, no denunciations, no campaigning or sloganeering. I think it's appropriate to use this space to talk about the origins of the mortgage debacle, and how conservative and liberal viewpoints differ.

Becker takes offense at my criticism of conservatives and how they blame Fannie Mae and Freddie Mac for the mortgage meltdown, instead of blaming the private-label securitizers, mostly on Wall Street, who own an estimated 80 percent of delinquent mortgages. When Fannie and Freddie own or guarantee more than half of the mortgages, but just 20 percent of the delinquent mortgages, one would think that Fannie and Freddie aren't as culpable in this mess as Wall Street is.

Becker concludes:

I am in the mortgage business and I consider myself conservative. I think Mr. Lewis misses the point. Myself and other conservatives that I spoken with aren't blaming the Freddie and Fannie for all of the mortgage troubles. We are blaming the liberals in Congress for forcing Fannie and Freddie to make loans to borrowers who wouldn't otherwise have qualified for a Fannie or Freddie loan. Had the liberals in Congress listened to the warnings issued by some of the conservatives in Congress perhaps Fannie and Freddie wouldn't have needed to be taken over by the Federal government. There is plenty of blame to go around for this mess, but as recently as one month prior to the collapse of Fannie and Freddie Barney Frank was assuring the public (and investors) that they were fine.

I know that it's an article of faith among conservatives that Fannie and Freddie were forced "to make loans to borrowers who wouldn't otherwise have qualified for a Fannie or Freddie loan." But I see very little evidence of that. Marginal borrowers were encouraged to apply for subprime or Alt-A mortgages. And mortgage lenders were eager to underwrite these loans and sell them on the secondary market as quickly as possible. They didn't sell those loans to Fannie or Freddie.

Here's another e-mail, forwarded by my company's CEO, from a reader who wants him to "rein in" the likes of me and my dastardly liberalism:

Mr. Lewis's intolerance of conservative views comes through loud and clear in his "analysis" of the mortgage meltdown. It seems all too convenient for him to pretend that mortgage companies are not forced to compete with banks when those same banks, in turn, are forced by the government to make loans to people who cannot afford them.

I quote conservatives in my articles and in this blog and sometimes give them the last word here, even when I disagree. That hardly constitutes "intolerance" of their views. I welcome comments from smart, forceful conservatives. I'm merely pointing out where dogma conflicts with the facts. They can repeat over and over that lenders "are forced by the government to make loans to people who cannot afford them," but that doesn't make the assertion true.

I've never had a lender show me a promissory note and tell me, "I wanted to reject this loan, because the borrower couldn't afford it, but the government forced me to approve it." C'mon. Bankers are big boys and girls. They know how to say no.

Lenders made these loans because they wanted to make profits, not because of government pressure.