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Mortgage Rates Set to Jump

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Fixed rates on mortgages were mostly unchanged this week. But worries about the Federal Reserve’s potential exit from its bond-buying spree have the 30-year mortgage poised to ascend.

Primary residential lenders surveyed by Freddie Mac this week reported 30-year mortgages at an average of 4.40 percent, exactly the same as last week.

However, Freddie’s report indicated that 30-year fixed rates have soared from 3.62 percent in the same week in 2012.

“Fixed mortgage rates have been bouncing around over the past few weeks on market speculation that the Fed will taper some of its monetary stimulus,” Freddie Mac Chief Economist Frank Nothaft explained in the report. “In fact, 65 percent of economists surveyed by Bloomberg expect the Fed to reduce the amount of bond purchases at its September 17th and 18th monetary policy committee meetings.”

Fears that the Fed will begin scaling back its massive purchases of Treasury bonds and agency mortgage-backed securities next month had the stock and bond markets reeling Thursday.

The Dow Jones Industrial Average plummeted more than 225 points, while the yield on the 10-year Treasury bond shot up to 2.77 percent — it’s highest level since Aug. 1, 2011, when it also closed at 2.77 percent, according to historical Treasury Department data.

Based on the average 2.68 percent for the 10-year Treasury yield during the days that Freddie conducted this week’s survey, mortgage rates could be around 9 basis points worse in Freddie’s next report.

More than two-thirds of panelists surveyed by Bankrate.com for the week Aug. 15 to Aug. 21 agreed with Mortgage Daily’s projection and predicted that mortgage rates will climb at least 3 BPS over the next week. A little more than a fifth expect no change, and just 11 percent forecasted a decline.

The August 2013 U.S. Economic & Housing Market Outlook from Freddie has 30-year mortgages averaging 4.4 percent in the third quarter and 4.5 percent in the fourth quarter. Freddie predicts a 20-basis-point increase each quarter of next year.

The U.S. Mortgage Market Index report from LoanSifter and Mortgage Daily for the week ended Aug. 9 had jumbo mortgages priced at a 29-basis-point premium over conforming loans. The jumbo-conforming spread crept up from 28 BPS in the prior report.

In Freddie’s weekly survey, the 15-year fixed-rate mortgage averaged 3.44 percent, one basis point higher than in the last report. Fifteen-year mortgages were a little less attractive this week, with the spread between 15- and 30-year loans slipping to 96 BPS from 97 BPS in the week ended Aug. 8.

A 4-basis-point rise from seven days ago for the five-year, Treasury-indexed, hybrid, adjustable-rate mortgage left it averaging 3.23 percent in Freddie’s survey.

Even the one-year Treasury-indexed ARM — which hadn’t risen in six weeks — increased 5 BPS to 2.67 percent this week, Freddie reported. The one year averaged 2.69 percent in the week ended Aug. 16, 2012.

One-year ARMs are expected to average 2.6 percent this quarter and in the fourth quarter, according to Freddie’s outlook. By the first-quarter 2014, the one year is expected to reach 2.7 percent.

Rates and payments on one-year ARMs adjust based on the yield for the one-year Treasury yield, which moved up 1 basis point from a week earlier to 0.13 percent on Thursday, according to the Treasury Department data.

As is the case with the one-year Treasury yield, the six-month London Interbank Offered Rate is used to determine adjustments for ARM rates and payments. LIBOR was 0.40 percent as of Wednesday, the same as last week, according to Bankrate.com.

In the latest Mortgage Market Index report, ARM share was 10.1 percent, wider than 9.2 percent in the previous report.

Freddie predicts that ARM share will widen from 10 percent this quarter to 11 percent in the fourth quarter then increase 1 percentage point each quarter next year.

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