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10-Year Yield Sinks as Obama Restricts Banks

Rates

The 30-year fixed rate fell below 5 percent and is likely to fall further after comments by the president about limiting bank activities sent the stock market reeling.

In its Primary Mortgage Market Survey for the week ended today, Freddie Mac said the average 30-year fixed-rate mortgage was 4.99%, off from 5.06% a week earlier and 5.12% a year earlier.

The conventional 30-year fixed rate was 4.875% in the Mortech-MortgageDaily.com Mortgage Market Index for the week ended Jan. 20, unchanged from a week earlier. The 30-year jumbo rate was 5.75%, falling from 6.00% a week before.

Fannie Mae predicts that the 30-year will average 5.26% this quarter, then gradually climb to 5.82% by the end of the year.

The average 15-year fixed-rate mortgage was off 5 basis points from the prior week to 4.40%, Freddie reported.

Following President Barack Obama’s call today for Congress to restrict the size and scope of U.S. financial institutions — the Dow Jones Industrial Average tumbled more than 200 points and the 10-year yield sank from 3.76% a week ago to 3.601% during trading today, according to data from the U.S. Department of the Treasury and WSJ.com. The more than 15-basis-point decline suggests rates might have a little further to fall before next week’s report.

Fixed rates are likely to remain within 2 BPS of their current levels during the next 35 to 45 days based on predictions from 60% of the panelists surveyed by Bankrate.com for the week Jan. 21 to Jan. 27. More than a quarter forecasted an increase and 13% expected a decline.

The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 5 BPS less than last week at 4.27% in Freddie’s survey.

Down more than any other mortgage product — the one-year Treasury-indexed ARM averaged 7 BPS less than last week at 4.32%, Freddie said. The one-year was 4.92% 12 months earlier. In its forecast, Fannie projected that the one-year will average 4.58% in the first quarter then rise to 5.16% by the end of the year.

The underlying index, the yield on the one-year Treasury bill, fell to 0.31% yesterday from 0.37% seven days earlier, based on Treasury data. The yield on the six-month London Interbank Offered Rate was 0.39% as of yesterday, Bankrate.com reported, 1 basis point higher than a week ago.

ARMs represented 4.1% of applications tracked in the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ended Jan. 15, edging up from 4.0% in the previous survey.

Freddie’s 25th annual ARM survey released Tuesday found that borrowers preferred hybrid ARMs over annually adjusting ARMs.

The average U.S. loan amount edged up to $207,927 from $207,109 the prior week in the Mortech-MortgageDaily.com index. Washington, D.C., maintained its grip on the highest loan amount, coming in at $324,894, followed by $266,706 in Massachusetts and $263,784 in Delaware. North Dakota’s $136,751 was the lowest of any state.

The average U.S. jumbo loan amount declined to $659,348 from $676,182 in the prior Mortgage Market Index report.

Mortgage activity declined, with the number of pricing inquiries at Mortech inquiries falling 9% from the prior week in the Mortgage Market Index report.

But a week earlier, applications increased 9% on a seasonally adjusted basis in MBA’s survey. The rise was supported by a 10% increase in purchase activity and an 11% jump in refinances — which accounted for 72% of overall activity, unchanged from the previous week.

More recently, the share of inquiries in the Mortech-MortgageDaily.com report that were for refinances edged up to 48% from the previous week’s 47%. Rate-term refinances represented 32% in the latest week, while cashouts accounted for 16%.

Refinances are forecasted by Fannie to account for 60% of first-quarter originations, then linger between 35% and 38% through the end of 2009.

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