The main reason the current mortgage market is like the diamond trade is because the Fed’s current policy has been to create the market for mortgage backed securities. The Fed agreed to spend $ 1.25 trillion through the first quarter of 2010 to purchase mortgage bonds, thereby keeping interest rates low and stimulating the housing market.
The video below, How Interest Rates Move, does a great job of explaining interest rates in general and how the Fed’s policy has affected the housing market the up until now.
[youtube]http://www.youtube.com/watch?v=F8mXNBDFCck[/youtube]