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Record Mortgage Rates Poised for Another New Low

The good news is that fixed mortgage rates fell to the lowest levels on record and are already on their way to setting another new low — with a sub-3 percent rate in site for the 15-year mortgage. The bad news is that the stock market is on its way to the lowest point this year. There were no records set, however, for adjustable-rate products.

At 3.79 percent, the fixed-rate 30-year mortgage averaged less than at any other time since Freddie Mac started tracking rates in 1971.

The 30 year was 3.83 percent in Freddie’s Primary Mortgage Market Survey for the week ended May 10 and 4.61 percent a year earlier.

“The European debt crisis overshadowed improving economic indicators for the U.S. and allowed Treasury bond yields and fixed mortgage rates to ease for another week,” Frank Nothaft, chief economist for Freddie, explained in the weekly report.

Mortgage rates could be 7 BPS lower in next week’s survey if the 10-year Treasury yield is any indication. The 10-year yield averaged 1.77 percent during the period when Freddie surveyed its 125 mortgage lenders for today’s report, while it closed at a record-low 1.70 percent today, according to data provided by the Department of the Treasury.

The 10-year yield tumbled as investors abandoned the stock market, with the Dow Jones Industrial average plummeting 156 points today to close at 12,442 — its lowest level since January and near its lowest level of the year.

But a majority of panelists surveyed by Bankrate.com for the week May 17 to May 23 expect no change in rates during the next week, while just 21 percent each expect either an increase or decrease of at least 3 BPS.

In the long run, Fannie Mae predicts that the 30 year will average 3.9 percent in the first half of this year and 4.0 percent in the second half. During the first half of 2013, Fannie predicts the 30 year will average 4.1 percent.

Borrowers inquiring about a jumbo mortgage were quoted a rate that was 57 BPS higher than a conforming loan in the U.S. Mortgage Market Index report from Mortech Inc. and Mortgage Daily for the week ended May 11. A week prior, the jumbo-conforming spread was less at 53 BPS.

Freddie said the 15-year fixed-rate mortgage averaged a record-low 3.04 percent, improving from the previous week’s 3.05 percent. The discount for 15-year loans over 30-year mortgages fell to 75 basis points from last week’s 78-basis-point spread.

But the five-year, Treasury-indexed, hybrid, adjustable-rate mortgage didn’t participate in the rally — rising to 2.83 percent from 2.81 percent in Freddie’s previous survey.

It was the same story for the one-year Treasury-indexed ARM, which Freddie said increased to 2.78 percent from 2.73 percent. But the one year was better than 3.15 percent during the same week last year.

Fannie forecasts the one-year ARM at 2.8 percent for the first-half 2012 and 2.9 percent in the second half.

Like the one-year ARM, itself, the underlying index — the yield on the one-year Treasury note — was higher this week. Treasury Department data indicated that the yield closed at 0.20 percent today versus 0.18 percent a week prior. Shorter-term Treasury yields have not performed as well as long-term Treasury yields with the Federal Reserve continuing its “operation twist” by reinvesting in longer-term bonds.

There was no change from last week for the London Interbank Offered Rate, which Bankrate.com reported at 0.73 percent as of Wednesday.

ARMs accounted for 4.562 percent of pricing inquiries in the most-recent Mortgage Market Index report. ARM share retreated from 4.829 percent a week earlier as prospective borrowers flocked to the lowest fixed rates on record.

ARM share of conventional loan applications is projected by Fannie to be 6 percent during all of this year and all of 2013.

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