There is a basic behavior in investment choices known in the financial world as Risk Aversion. If a person is choosing between two investments with equal risk, he usually chooses one with a higher rate of return.

An off-shoot of Risk Aversion is that a rational person will only invest in an instrument of greater risk if the returns are greater, too.

The difference in investment return rates is sometimes called a “spread” and the historical spread between government debt and mortgage debt is somewhere near 1.5 percent.

However, the spread started to grow in July 2007.July 2007 marked the “official” start of the Credit Crunch and as mortgage delinquencies grew nationwide, so did the market’s perceived risk of investing in them.

The “spread” almost doubled in a year. On September7, 2008 the takeover of Freddie Mac and Fannie Mae was announced by the federal government. This action offered the “risk free guarantee” for mortgage debt. After the announcement of the takeover the “spread” decreased.

This is one reason why mortgage rates fell Monday and why they should continue to stay low over the near-term. With the U.S. government backing the mortgage market, there’s no room for the risk premium that helped keep rates high this past year.

It doesn’t mean more people will qualify for conforming home loans, but for the ones that do, financing should be cheaper.