Larry Penn: Well, right. So we’ve got good call protection for 100 basis point rally for sure, if you look at our portfolio, more than that, then obviously, then you start — our pool start turning more negatively convex. But as Mark said, we kind of like the combination of the call protection that the intermediate coupons provide and the extra yield versus the low coupons. So we’ve got some — we’ve got good call protection. Mark, anything you want to add to that?
Mark Tecotzky: Yes. I guess what I would say is — so we’ve believed in sort of this lock-in effect that borrowers that have 2.75%, 3% and 3.25% mortgage rates, that mortgage — the value of that mortgage that mortgage that might be mark-to-market up 20 points is a significant deterrent to people moving. And that’s been borne out, right? You look at existing home sales are generational lows. There’s been some more like academic papers talking about the impact it has in the mobility of the workforce. So, we’ve kind of believed that the IOs have benefited from that. And then sort of within that broad brush, then you look for sort of okay, the market, like that’s not new news. So the market kind of expects that. And then where can you look for incremental speeds above and beyond market expectations and discounts.
So we sort of talked about that in the prepared remarks. Now I think what’s interesting is that whatever the statistic is, 99% of the mortgage market is out of the money now. And if mortgage rates drop 50 basis points, 97% is out of the money. So it takes a big move to get things in the money. But I think what is interesting is that the question is how much the mortgage rate need to drop to get people to up their turnover, if they’re a little bit out of the money. So if someone is 300 basis points out of the money right off the bat, that’s a real deterrent. But I suppose they’re 200 basis points out of the money, and they’ve been delaying a move for two or three years, then it’s not as much as a deterrent. So I think it’s — when we talk to a lot of the non-bank originators, initially, they were saying we’re just — they all with little bit different numbers, but I think initially sort of what the conversation was, we think 5% mortgage rates is the breakpoint.
If you get to 5% mortgage rates, then that’s you can start talking about, hey, you’re not at the 2021 lows, but you’re not nearly to 2022 highs, and they think it 5%, I guess, to do borrower service or whatever, they start to see more demand, more people willing to go up at 3% and go into a 5% if they want to move or get an extra bed and whatever. But now when you talk to them, that was maybe like 8 months ago. Now when you talk to them, they’re saying, “Well, we think you get to a 5.5% mortgage rate.” That’s enough to get people to move. So I think you’ve had a bunch of people staying in a house that they’d rather sort of sell and buy something else. There’s one thing you kind of tough it out for six months. Now people have toughed it out for a year and six months.
And so I think that, that rate it takes to get people to sort of have a little bit higher turnover, I think that rate differential between the current — their existing mortgage rate and the current rate, I think that widens over time as people get a little bit more antsy. And the other thing you see is that like it’s no secret, housing is very unaffordable now relative to historical measures if you just look at like median income versus monthly mortgage payments if you buy a medium-priced home. But it’s getting a little bit better, not so much from — I mean, there’s three ways to get it better, right? You can have mortgage rates drop, you can have home prices drop or you can have wage gains, right? And so you’ve seen a little bit with wage gains.
