Rising Rates Ready to Retreat

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Mortgage rates rose again but might relent. Borrowers out shopping for shorter-term or jumbo mortgages increased their advantage this past week.

It was the fourth consecutive week of higher mortgage rates, with the 30-year fixed-rate averaging 4.91 percent in Freddie Mac’s survey for the week ended Thursday, up from 4.87 percent seven days earlier. During the same week last year, the 30-year was 5.07 percent.

Freddie’s chief economist, Frank Nothaft, highlighted an improving economy — though such news generally tends to spawn worries of inflation and higher mortgage rates.

It looks like rates could fall by next week’s reports. The yield on the 10-year Treasury was 3.48 percent during mid-day trading, lower than 3.58 percent at the close of trading last Thursday, based on data from the Department of the Treasury and WSJ.com.

But only 18 percent of Bankrate.com panelists surveyed for the week April 14 to April 20 expected an improvement over the next week. The remaining panelists were evenly divided over whether rates would rise or remain within 2 BPS of this week’s levels.

Freddie’s April 2011 Economic and Housing Market Outlook indicated that the 30-year will average 5.0 percent in the second quarter then gradually rise to 6.1 percent by the end of 2012.

The spread between the conforming 30-year fixed-rate mortgage and the jumbo 30-year was cut to 60 BPS in the U.S. Mortgage Market Index report for the week ended April 8 from the prior week’s 64 BPS.

A 3-basis-point weekly increase was reported for that average 15-year fixed-rate mortgage, which Freddie said was 4.13 percent. The 15-year became a more attractive option this week as the spread between the 30-year and the 15-year widened to 78 BPS from last week’s 77 BPS.

Mortgage shoppers seeking hybrid adjustable-rate mortgages were stung this week, with the average five-year ARM rising to 3.78 percent from 3.72 percent in Freddie’s previous survey.

The one-year Treasury-indexed ARM, meanwhile, edged up 3 BPS to 3.25 percent but was 88 BPS better than during the same week in 2010. Freddie predicts a second-quarter average of 3.3 percent for the one-year and expects that the ARM will increase to 3.9 percent at the end of next year.

The underlying index for the one-year ARM, the yield on the one-year Treasury, was 0.23 percent Wednesday, 6 BPS lower than the previous Wednesday, based on data from the Treasury Department.

Another ARM index, the six-month London Interbank Offered Rate, fell to 0.44 percent as of Wednesday from 0.46 percent a week prior, Bankrate.com data indicated.

LIBOR was in the news today, with the Wall Street Journal reporting that investigators for the U.S. Department of Justice and the Securities and Exchange Commission are examining whether some of the world’s biggest banks colluded to manipulate LIBOR. Subpoenas have reportedly been sent to Bank of America Corp., Citigroup Inc. and UBS.

The share of new mortgage activity represented by ARMs rose to 9.75 percent in the latest Mortgage Market Index report released by Mortech Inc. and Mortgage Daily from 9.48 percent a week earlier.

ARM share based on closed loans will be 6 percent this quarter, 7 percent in the third quarter and 8 percent at the close of the year, according to Freddie’s forecast.

The share of pricing inquiries for refinances in the Mortgage Market Index was barely changed from the prior week at 41 percent.

Freddie projects a refinance share of 60 percent in the current quarter, one-half in the third quarter and a little more than a third in the final three months of this year.


Mortgage Daily Staff


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