Across-the-Board Decline in Rates; Refis Rise

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MORTGAGE EXPERT
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Fixed rates were lower, the hybrid adjustable rate fell and even the one-year adjustable rate managed an improvement. While increased refinance share helped boost this week’s new mortgage activity, the outlook is for a substantially smaller share this year.

In Freddie Mac’s Primary Mortgage Market Survey for the week ended Thursday, the average 30-year fixed-rate mortgage fell to 4.71 percent from last week’s 4.77 percent and from a year earlier — when it stood at 5.06 percent.

A weaker-than-expected employment report dragged down bond yields and mortgage rates, according to Freddie’s chief economist, Frank Nothaft.

In its January housing forecast, Freddie predicted that the 30-year will average 5.0 percent in the first quarter, then steadily climb to 5.8 percent by the middle of next year.

The Mortech-MortgageDaily.com Mortgage Market Index report for the week ended Jan. 12 indicated that the spread between jumbo fixed-rate loans and conforming mortgages tumbled to 74 BPS from last week’s 86 BPS.

At the close of the markets today, the yield on the 10-year Treasury was down 10 BPS from a week earlier at 3.34 percent, according to Treasury Department data. The movement suggests rates could be a little lower in next week’s reports.

Don’t expect any changes in mortgage rates during the next week based on panelists surveyed for the week Jan. 12 to Jan. 19 by Bankrate.com; 56 percent predicted rates will remain within 2 BPS of their current levels, nobody forecasted a decline and 44 percent said rates will rise.

At 4.08 percent, the average 15-year fixed-rate mortgage was 5 BPS better than in Freddie’s previous survey.

The weekly improvement was a little less noticeable with the five-year Treasury-indexed adjustable-rate mortgage, which eased 3 BPS this week in Freddie’s survey to 3.72 percent.

The one-year Treasury-indexed ARM managed to eek out a 1-basis-point weekly decline, Freddie said, with the average at 3.23 percent this week. The one-year was 4.39 percent in the same week during 2010. Freddie predicts that the one-year will average 3.3 percent this quarter, then increase 10 BPS every three months until the second-quarter 2012.

The index on the one-year, the yield on the one-year Treasury, closed today at 0.26 percent, lower than 0.30 percent last Thursday, the Treasury Department reported. Another ARM index, the six-month LIBOR, was unchanged from last week at 0.46 percent, Bankrate.com reported.

ARM share fell to 4.9 percent in the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending Jan. 7 from 5.0 percent the week before.

As a share of originations, ARMs are expected to account for 7 percent of first-quarter business, according to Freddie. By 2012, ARM share is forecasted to reach 12 percent.

If the Mortgage Market Index is any indicator, mortgage originations will soon be higher. The index rose to 223 from 184 seven days earlier but was lower than 256 a year earlier. Refinance share climbed to 53 percent this week from 51 percent the prior week. Rate-term refinance share was 38 percent, and cashout share was 16 percent.

Refinance share of applications will fall from 55 percent this quarter to 30 percent in the fourth quarter based on Freddie’s forecast.

Mortgage Expert

Mortgage Daily Staff

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