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Refis Forecasted to Fall as Rates Escalate

Average 30-year fixed-rate 4.39%

By SAM GARCIA Mortgage Daily

Nov. 19, 2010


Two huge mortgage firms predict a drop in refinances and an increase in the share of consumers who opt for an adjustable rate. As rates have lurched higher, borrowers are already curbing their appetite for refinances, dragging down overall new loan business.

Jumping from 4.17 percent last week, the average 30-year fixed-rate mortgage was 4.39 percent in the latest survey from Freddie Mac -- which buys loans from mortgage lenders and sells them in loan pools to investors. The 30-year was 4.83 percent a year ago.

"Retail sales rose by nearly twice the consensus in October and represented the strongest gain since March," Freddie Chief Economist Frank Nothaft explained about the increase in the report. "Moreover, consumer sentiment, as measured by the University of Michigan, ticked up in November to the highest level since June."

In its monthly forecast, Fannie Mae -- which operates like Freddie -- predicted the 30-year will average 4.3 percent this quarter and during the first half of next year. Freddie's latest forecast has the 30-year moving from 4.2 percent in the fourth quarter to 4.3 percent in the first-quarter 2011.

Based on an analysis of the 10-year Treasury yield by Mortgage Daily, mortgage rates aren't likely to be much different in next week's reports.

Exactly half of Bankrate.com's panelists for the week Nov. 18 to Nov. 24 see no changes ahead for interest rates over the next week. An up tick was forecasted by 36 percent and the other 14 percent projected a decline.

Interest rates on mortgages above $417,000 were 0.87 percent higher than rates on conforming loans in the Mortech-Mortgage Daily Mortgage Market Index report for the week ended Wednesday. Last week, jumbo loans were 0.89 percent more than their conforming counterparts.

Similar to the 30-year, the average 15-year fixed-rate mortgage was 0.19 percent worse than last week at 3.76 percent in Freddie's survey.

At 3.26 percent, there was no weekly change in the one-year Treasury-indexed ARM, according to Freddie. The one-year was 4.35 percent a year ago.

Fannie has the average one-year ARM falling from 3.4 percent this quarter to 3.2 percent during the first half of 2011, while Freddie expects the one-year to rise from 3.4 percent this quarter to 3.5 percent in the first six months of next year.

The Mortgage Bankers Association reported in its Weekly Mortgage Applications Survey for the week ended Nov. 12 that the share of consumers who chose an ARM was unchanged from the prior week at 5.3 percent.

Mortgage activity fell 6 percent according to the Mortgage Market Index -- which declined to 291 from 311 last week. The report indicated that the deterioration was the result of refinance activity, with the share of consumers who were refinancing falling to 57 percent from 61 percent.

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