Following six straight weeks of increases, mortgage rates took a breather this week. But the reprieve looks to be only temporary as financial markets violently react to coming changes in Federal Reserve policy.
After increasing each week since May 2, when 30-year fixed rates averaged 3.35 percent, the 30 year fell to 3.93 percent in Freddie Mac’s Primary Mortgage Market Survey for the week ended June 20.
Frank Nothaft, chief economist at McLean, Va.-based Freddie, explained that rates moved little as the market awaited the Federal Reserve’s monetary policy announcement Wednesday.
The Federal Open Market Committee issued its statement yesterday followed by comments from Fed Chairman Ben Bernanke suggesting that an end is in sight for its quantitative easing program.
Word of Bernanke’s comments sent the Dow Jones Industrial Average plunging more than 200 points on Wednesday and continuing in bear territory Thursday — falling another 354 points by the market’s close.
Even more important to those in the mortgage industry is the impact that Bernanke’s comments had on the bond market.
A Mortgage Daily analysis of this week’s Treasury market activity indicates that mortgage rates are likely to be around 17 basis points worse in Freddie’s next survey.
The yield on the 10-year Treasury note, which acts as a benchmark for fixed mortgage rates, averaged 2.24 percent during the period when Freddie surveyed primary lenders this week, while it closed at 2.41 percent Thursday, according to Treasury Department data.
An equal share of panelists surveyed by Bankrate.com for the week June 20 to June 26 — 40 percent — predicted that rates will either move higher or stay at their current levels over the next week or so. Just a fifth of the respondents projected that rates will decline at least 3 BPS.
Freddie forecasted in its June 2013 Economic and Housing Market Outlook that fixed-rate 30-year mortgages will average 3.6 percent in the second quarter, 3.9 percent in the next period and 4.0 percent in the final three months of this year.
The U.S. Mortgage Market Index report from LoanSifter and Mortgage Daily for the week ended June 14 had jumbo loans priced at a 30-basis-point premium over their conforming counterparts, the same as the prior week.
Freddie reported that 15-year fixed-rate mortgages averaged 3.04 percent, 6 BPS better than the week ended June 13. Fifteen-year mortgage rates were discounted by 89 BPS over 30-year loans, a little better spread than 88 BPS in the previous report.
No change from the prior week was reported by Freddie for the five-year, Treasury-indexed, hybrid, adjustable-rate mortgage, which averaged 2.79 percent.
But a one-basis-point dip was recorded for the one-year Treasury-indexed ARM, which averaged 2.57 percent in Freddie’s survey. The one year was 2.74 percent in the week ended June 21, 2012.
Freddie predicts that one-year ARMs will average 2.5 percent in the second and third quarters then inch up to 2.6 percent in the fourth quarter.
There was no change from last week in the index for one-year ARMs. The yield on the one-year Treasury note closed at 0.14 percent on Thursday, according to data from the Department of the Treasury.
The six-month London Interbank Offered Rate, which serves as the index for some subprime ARMs, was 0.41 percent Wednesday, the same as a week earlier, according to Bankrate.com.
As fixed rates have been trending higher, ARM share has widened for three consecutive weeks. ARM share in the latest Mortgage Market Index report was 6.0 percent, up from 5.7 percent seven days earlier.
In Freddie’s outlook, ARM share, which was 7 percent in the final quarter of 2012, is projected to increase one percentage point each quarter through the end of next year — when it is expected to reach 15 percent.