Tuesday, February 17, 2009

Mortgage Rates Fall

by Mike Hughes
During the past week, the average 30-year fixed mortgage rate fell from 5.70% to 5.34%. The rate has fallen more than a full percentage point in three months. Additionally, the average 15-year fixed mortgage rate fell from 5.31% to 5.03%, and the average jumbo 30-year sank from 7.12% to 6.98%. Lastly adjustable rate mortgages dropped over the past week falling to 5.67% from 5.73% and the 5/1 ARM sinking to 5.37% from 5.5%. As mortgage rates edged off their six-week high set during the week of February 4th; investors began to sell stocks and buy Treasury’s, which lowered the yields and pulling down mortgage rates. According to Greg McBride, "We're going to continue to see volatility in mortgage rates between 5% and 6%. There's a tug of war between the Fed and the Treasury trying to push rates lower, and the volume of government debt issuances that pushes rates higher."

Demand for U.S. mortgage applications fell nearly 25% last week, as requests for loans to buy homes sank to an eight-year low. The Mortgage Bankers Association's seasonally adjusted home purchase applications index slid 9.8% in the past week, which is at its lowest level since the end of 2000. "In addition to waiting for the rate, you have home prices continuing to come down, so why would I pay $200,000 today when I can pay maybe $180,000 in a couple months or even $150,000," said Daniel Penrod, industry analyst for the California Credit Union League. Penrod also commented that due to the current state of unemployment, there is still a downward slope for non-foreclosure sales and prices. Analysts had also been predicting that at least a third of homeowners applying to cut costs by refinancing would be turned down because of more rigid lending standards, job loss or because their home values have fallen below the size of existing mortgages. On the upside, the $15,000 homebuyer tax credit that is part of the economic stimulus program adopted by the U.S. Senate would create nearly 500,000 home sales and add 255,000 jobs in the coming year.

Some big banks have cut back on doing business with mortgage brokers, and if this trend continues, many mortgage brokers could close down. However, fewer brokers could lead to a less competitive marketplace and more expensive home loans. Brokers say they perform a needed consumer service by monitoring offers from an array of lenders, picking and choosing the best deals, keeping rates low. Marc Savitt, president of the National Association of Mortgage Brokers, suspects that banks like Chase thinks they can increase profits by cutting out the middlemen, but the added costs of bricks-and-mortar operations will ultimately make the business less efficient.

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