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15, 30-year Spread Balloons

Average 30-year 5.42%

June 25, 2009

By SAM GARCIA


The spread between the 15-year and 30-year fixed-rate mortgage has not been this wide for more than a year. Reflecting last week's improvement in rates, 1003 applications improved..

Up 4 basis points from last week, the average 30-year fixed-rate mortgage was 5.42 in Freddie Mac's Primary Mortgage Market Survey for the week ended June 25. The 30-year was 1.03% better than the same week during 2008.

The Federal Housing Finance Agency, which regulates and currently operates Freddie, reported today that the 30-year averaged 4.88% in May, 0.01% higher than April.

In its June 2009 Economic and Housing Market Outlook, Freddie predicted the 30-year will average 4.9% this quarter and 5.3% in the third quarter and fourth quarter.

The average 15-year fixed-rate mortgage fared much better in Freddie's weekly survey, easing 2 BPS to 4.87%. The spread between the 15-year and the 30-year -- at 0.55% -- is at its highest level since March 20, 2008, when it stood at 0.60%. FHFA reported that the 15-year decreased to 4.71% in May from April's 4.75%.

The yield on the 10-year Treasury bond, a barometer for fixed-mortgage rates, was 3.660% near noon, tumbling from 3.816% last week.

Less than half of the 100 panelists surveyed by Bankrate.com for the week June 25 to July 1 predicted a decrease of at least 3 BPS in mortgage rates over the next 35 to 45 days. Just under a third forecasted no change, while nearly a quarter expected an increase.

The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 4.99% in Freddie's latest survey, 2 BPS higher than last week.

But Freddie reported that the one-year Treasury-indexed ARM average declined 2 BPS to 4.93%. Freddie projects that the one-year will average 4.8% in the second and third quarters, then rise to 4.9% in the fourth quarter.

The yield on the one-year Treasury bill, which serves as the index for the one-year ARM, closed yesterday at 0.50%, unchanged from seven days earlier. The yield on the six-month London Interbank Offered Rate -- the index used for a big share of subprime ARMs -- was 1.15% as of yesterday, Bankrate.com reported. LIBOR yielded 1.16% a week earlier.

Despite the decline in the ARM indices and in the average one-year ARM, the share of applications for ARMs eased to 4.1% in the Mortgage Bankers Association's Weekly Mortgage Applications Survey for the week ending June 19 from the prior week's 4.3%. The ARM share will only be 2% this quarter, where it will stay through the end of the year, according to Freddie's forecast.

Loan applications increased 7% on a seasonally adjusted basis in MBA's survey, bringing its Market Composite Index to 548.2. The improvement reflects last week's decline in mortgage rates and was driven by a 7% increase in purchase activity.

Refinance activity was also higher in MBA's survey, increasing 6%. But the refinance share was unchanged at 54%. Freddie predicted the second-quarter refinance share will come in a 71% and fall to 51% within a year.

In its revised origination outlook for 2009 released this week, MBA lowered projected refinance originations to $1.297 trillion from $1.960 trillion in its March projection. The trade group cited a spike in mortgage rates during May and lackluster results from the Obama administration's Home Affordable Refinance Program.


Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of MortgageDaily.com in 2000.

e-mail: [email protected]


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