Rates Continue to See Saw

In its Primary Mortgage Market Survey for the week ending Oct. 23, Freddie Mac reported the average 30-year fixed-rate mortgage at 6.04%, tumbling from 6.46% last week — when the average surged 52 basis points. A year ago, the 30-year averaged 6.33%.

Frank Nothaft, Freddie’s chief economist, attributed the decline to reports of tame inflation and a weaker housing market.

Freddie projects the 30-year will average 5.9% from now through the third quarter of next year. The Mortgage Bankers Association, meanwhile, issued its own forecast this week indicating it expects the 30-year to average 6% during the current quarter and slightly lower than that through 2009.

The average 15-year fixed-rate mortgage was also down 42 BPS from last week — to 5.72%, according to Freddie.

The 10-year Treasury yield, which fixed-mortgage rates tend to follow, was 3.57% near midday, around 47 BPS lower than a week earlier.

Rates are headed lower, according to 46 of the 100 mortgage brokers, mortgage bankers and other mortgage “experts” surveyed by Bankrate.com for the week Oct. 23 to Oct. 29. Rates will stay within 2 BPS of their current level during the next 35 to 45 days, according to 39 of the panelists, while 15 project an increase.

The Federal Reserve Board announced Monday that as of Oct. 1, 2009, loans will need to be reported under Regulation C if the annual percentage rate is at least 1.5% higher than in Freddie’s weekly survey on first liens and at least 3.5% higher than the survey rates on subordinate liens. By moving from comparable Treasury yields to Freddie’s mortgage survey rates, the Fed hopes to better exclude prime loans from reporting.

The average five-year Treasury-indexed hybrid adjustable-rate mortgage saw a more modest decline than long-term rates, falling just 8 BPS from last week to 6.06%, Freddie reported. The one-year Treasury-indexed ARM, however, increased 7 BPS to 5.23%.

The 1-year Treasury yield itself was 1.64% yesterday, soaring 50 BPS from a week earlier, according to U.S. Department of the Treasury data. Another ARM index, the London Interbank Offered Rate, was 3.70% as of yesterday, Bankrate.com reported. LIBOR sank from 4.26% seven days earlier.

Reflecting a widening spread last week between the one-year ARM and the 30-year fixed rate, ARM share nudged slightly higher to 3%, according to MBA’s Weekly Mortgage Applications Survey for the week ending Oct. 17.

Overall 1003 applications declined 17 percent on a seasonally adjusted basis from the previous week in MBA’s latest survey, bringing the Market Composite Index to 408.1. The weaker activity was mostly the result of a 24% decrease in refinance applications. Refinances accounted for 43% of new applications, down from 46% the prior week.

Purchase applications fell 11%, while government applications dropped 12%.

In its forecast, MBA projected total residential originations will be $1.86 trillion this year and $1.67 trillion next year. MBA said originations were $2.30 trillion last year. Purchase originations are forecasted at $0.91 trillion this year, down from $1.14 trillion in 2007. Refinances are projected at $0.95 trillion during 2008, down from $1.17 trillion last year.

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

e-mail: mtgsam@aol.com