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Mortgage Market Strengthens

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Mortgage rates fell and could fall further, while mortgage activity improved for the second week in a row. As the jumbo spread narrowed, adjustable-rate mortgages became more attractive.

Down 6 basis points from the prior week, the average 30-year fixed-rate mortgage was 5.00% in Freddie Mac’s Primary Mortgage Market Survey for the week ended May 6. The average was 4.84% a year ago.

In the Mortech-MortgageDaily.com Mortgage Market Index for the week ended May 5, the conventional 30-year mortgage fell to 5.065% from 5.109% the prior week. At the same time, the 30-year jumbo rate fell to 5.780% from 5.840% — trimming the conventional-jumbo spread to 72 BPS from 73 BPS.

The 10-year Treasury yield closed today at 3.41%, spiraling down from 3.76% a week earlier and pointing to lower mortgage rates next week, according to data from the U.S. Department of the Treasury. Concerns this week over Greece dragged down stocks and prompted a flight to quality.

Nearly half of the panelists surveyed by Bankrate.com for the week May 6 to May 12 predicted an increase in mortgage rates over the next couple weeks, while more than a third predicted no change and 18% foresaw a decline.

Freddie said the average 15-year fixed-rate mortgage was 4.36%, 3 BPS better than last week. The Mortech-MortgageDaily.com report indicated that the conventional 15-year fell to 4.37% from 4.410%.

Also down 3 BPS in Freddie’s report, the five-year Treasury-indexed hybrid ARM averaged 3.97%.

The biggest decline in Freddie’s survey was with the one-year Treasury-indexed ARM, which tumbled 18 BPS to 4.07%. The one-year was 71 BPS below its level a year ago.

The spread between the 30-year fixed-rate and one-year ARM widened to 93 BPS from last week’s 81 BPS. This will likely show up as increased ARM share when the Mortgage Bankers Association releases its report next week.

Yielding 0.34% at the close of business today, the one-year Treasury bill yield was 8 BPS better than last Thursday, the Treasury data indicated. The six-month London Interbank Offered Rate was 0.55% yesterday, rising from 0.51% seven days prior, Bankrate.com said.

This latest report from MBA, for the week ended April 30, indicated ARMs accounted for 6.3% of applications, higher than 6.0% the prior week.

The Mortgage Market Index ascended for the second consecutive week to 242 yesterday from 228 seven days earlier.

MBA’s report reflecting last week’s activity noted mortgage applications rose 4% on a seasonally adjusted basis driven by a 13% jump in purchase business. But refinance activity was down 2%.

U.S. mortgage amounts averaged $206,815, higher than last week’s $204,583, the Mortgage Market Index report said. This week’s highest average was in Alaska: $298,263. The lowest was $148,628 in Arkansas.

Refinance share edged up to 32% in the Mortech-MortgageDaily.com report from 31% the previous week. This week’s share reflected a rate-term refinance share of 21% and a cashout refinance share of 11%.

MBA’s report noted that refinance share fell to 52% from the previous week 56%.

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