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Mortgage Market Reverses Course

Rates

As mortgage rates edged higher, refinance activity tumbled — contrasting last week’s activity. The market’s response to a massive budget unveiled by the Obama administration suggests mortgage rates may head higher.

Freddie Mac reported in its Primary Mortgage Market Survey for the week ending Feb. 26 that the average 30-year fixed-rate mortgage was 5.07%. The 30-year rose from 5.04% seven days earlier — when the 30-year tumbled 12 basis points — and 6.24% 12 months earlier.

At 4.68%, the average 15-year fixed-rate mortgage, however, was unchanged from the prior week, the report indicated.

The majority — 60% — of panelists surveyed by Bankrate.com for the week Feb. 26 to March 4 projected mortgage rates will remain within 0.02% of their current levels during the next 35 to 45 days. The rest were evenly spit between rising and falling rates.

But the yield on the 10-year Treasury note shot up to 2.995% during trading today from 2.804% a week earlier — suggesting that fixed-mortgage rates will also move higher.

The increase in the 10-year yield follows President Barack Obama’s unveiling today of a massive $3.6 trillion budget that includes healthy tax increases for business and the wealthy, higher public spending and a $1.75 trillion federal deficit this year.

Freddie’s Chief Economist Frank Nothaft noted in the survey that the core Producer Price Index and the Consumer Price Index both moved higher than the market consensus last month as consumer confidence fell to the lowest level on record.

The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 5.06%, 2 basis points higher than the previous week, Freddie’s survey said.

The one-year Treasury-indexed ARM averaged 4.81%, nudging 0.01% higher, according to Freddie. The index on the one-year ARM — the yield on the 1-year Treasury itself — was 0.75% yesterday, rising from 0.64% the prior Wednesday.

Another ARM index, the six-month London Interbank Offered Rate, was 1.75% yesterday, Bankrate.com reported. LIBOR was 1.77% last week.

ARMs accounted for just 2% of total 1003s tracked by the Mortgage Bankers Association in its Weekly Mortgage Applications Survey for the week ending Feb. 20. ARM share was mostly unchanged from the previous week.

On a longer-term basis, another report from Freddie this week indicated that 97% of conforming ARM borrowers who refinanced during the fourth quarter moved into a fixed-rate mortgage. The level rose from 85% in the third quarter.

Nothaft explained that “very low” fixed mortgage rates appealed far more than not-so-low ARM rates.

MBA said overall applications were off 15% on a seasonally adjusted basis from the prior week, cutting its Market Composite Index to 743.5. Application activity swung wildly from last week — when overall applications were up 46%.

Waning refinance applications, which were down 19%, drove the overall decline. Refinances represented 70% of activity in MBA’s survey, down from 74% a week earlier.

Purchase loan applications were off 3%, MBA reported.

Purchase activity has not yet been impacted by lower house prices and affordable mortgage rates, Freddie’s Nothaft said.

MBA said applications for government mortgages — mostly FHA-insured originations — were 1% higher.

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