Dive into a new low rate!

Investors are demanding higher yields on mortgage-backed securities (MBS) guaranteed by Fannie Mae and Freddie Mac, and that could translate into higher interest rates for home buyers.

The Washington Post reports that at about 2.5 percent, the "spread" between MBS guaranteed by Fannie and Freddie and U.S. Treasurys of comparable terms is as wide as it's been in more than 20 years.

Under normal circumstances, the spread -- the difference in yields between those investments -- is an indication of how investors are assessing risk. MBS, even those backed by Fannie and Freddie, pay higher yields than Treasurys because they are riskier.

But there's another factor increasing the spread -- big investment funds are selling Fannie and Freddie-backed MBS to raise money to cover their losses on other, riskier investments, the Post reports. That's created a glut of MBS in the market, driving down their price. When prices on bonds and similar investments fall, their yields go up.

Regardless of its cause, the trend is worrisome because with the seizure of credit markets, Fannie and Freddie have been pretty much the only game in town for mortgage finance. Lenders like Countrywide Financial have switched almost all of their loan production into "agency eligible" loans because secondary market investors have lost their appetite for MBS not backed by Fannie and Freddie.

If secondary market investors are now losing their appetite for loans backed by Fannie and Freddie, that can only send interest rates up. And this is happening just as Congress and the Bush administration have lifted caps on Fannie and Freddie's portfolios and given them the green light to step into the market for "jumbo light" loans as large as $729,750.

Sidenote: Had to laugh at the LowerMyBills.com ads running above the Post story when I first clicked on it, screaming "House Payments Fall Again!" and "Fed Lowers Interest Rates Again!" Clicking on either ad takes you to a landing page inviting you to "Dive Into a New Low Rate!"

The average rate on 30-year fixed-rate mortgages rose for the third straight day Thursday, to 6.12 percent, Bankrate reported today.

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