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Rates to Hold

Rates to Hold

Average 30-year 6.40 percent

October 18, 2007


photo of Coco Salazar
Mortgage rates stayed near current levels and are not expected to worsen for at least eight months.

Unchanged from last week, the 30-year fixed-rate mortgage averaged 6.40%, according to Freddie Mac’s Primary Mortgage Market Survey for the week ending Oct. 18. Last year at this time, the average was 4 basis points lower.

The 15-year averaged 6.08%, edging up 2 BPS within the past seven days, Freddie said.

“Both economic indicators and mortgage rates came in mixed this week,” Freddie Chief Economist Frank Nothaft said in a written statement. “While retail sales were stronger in September, consumer confidence fell below market expectations in October. Moreover, both the core consumer price index and producer prices for September remained contained.”

The benchmark for long-term mortgage rates, the 10-year Treasury note yield, was at 4.51% around midday — down 17 BPS from a week ago.

Freddie’s latest forecast has the 30-year averaging its current level this quarter, then rising to and remaining at 6.5% throughout the first half of 2008.

Accordingly, two-thirds of the mortgage industry brokers, bankers and individuals surveyed by this week see rates staying relatively unchanged over the next month and a half. The rest of the panel’s votes were evenly split on whether rates would fall or rise.

Slipping 1 BPS to a reported 6.11% this week was the 5-year Treasury-indexed hybrid adjustable-rate mortgage average.

The 1-year ARM climbed 3 BPS from last week to 5.76%, Freddie said. The 1-year Treasury bill yield itself also went up 3 BPS over the prior seven days to 4.26% on Tuesday, according to Federal Reserve data.

The 6-month London Interbank Offered Rate, or LIBOR, was 5.13 percent for the week ended Oct. 17, 8 BPS below the prior week, reported.

But the 1-year ARM average is expected to drop from 5.7% last quarter to 5.5% this quarter and first six months next year, Freddie’s October forecast showed.

Nonetheless, many ARM borrowers are not prepared for the steep rise in mortgage payments these loans bring, according to a survey conducted last month by the AFL-CIO. Nearly half of the borrowers said they do not know how their ARMs adjust and nearly three-quarters do not know what their new payments will be at reset.

Furthermore, almost half of ARM borrowers expect they’ll have to cut back on everyday expenses when payments increase, the group said — though that share jumps when looking only at borrowers earning $50,000 or less. For borrowers whose payment had already reset, the average monthly payment increase was approximately $291.

ARMs continued to account for about 14 percent of total application activity, according to the Mortgage Bankers Association’s Weekly Mortgage Application Survey for the week ending Oct. 12.

Overall mortgage application volume inched up about 1% from the previous week, as a 2% increase in purchase money application activity offset a 1% decrease in refinance requests, MBA said, noting this data reflected an seasonal adjustment to account for the Columbus Day holiday.

The refinance share slipped from the previous week to 45%, MBA reported.

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