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Refi Rally Brewing


It was a small decline — but enough to mark six weeks in a row that fixed rates fell. And by one key measure, the outlook is for a further decline — placing mortgage rates within 25 basis points of a refinance wave.

This week’s reading on interest rates from Freddie Mac indicated that the average 30-year fixed-rate mortgage was 4.60 percent, a basis point better than seven days earlier.

It was the sixth consecutive week that the 30-year was lower and the lowest level this year for the benchmark rate. During last year’s refinance wave, the 30-year bottomed out at 4.17 percent during the week ended Nov. 11 — suggesting another rally is just 30 to 40 BPS away.

Freddie’s chief economist Frank Nothaft, attributed the latest improvement to a decline in the index of leading indicators and in business and manufacturing activity.

Odds are, the 30-year will continue lower in next week’s reports based on the 10-year Treasury yield, which fell from 3.17 percent last Thursday to 3.08 percent near mid-day, according to data reported by the Department of the Treasury and The 30-year could be more than 5 BPS lower next week based on today’s data.

But a majority of panelists for the week May 26 to June 1 see it differently and expect no change in rates during the next week. A quarter expect at least a 3-basis-point decline and 19 percent forecasted an increase.

The 30-year will average 4.9 percent this quarter, then rise to 5.1 percent in the third-quarter and 5.2 percent in the final-three months of this year based on Fannie Mae’s May Housing Forecast.

A year earlier, Freddie said that the 30-year averaged 4.84 percent. The regulator of Fannie and Freddie, the Federal Housing Finance Agency, reported that the average 30-year fixed rate was 4.99 percent in April, down 7 BPS from a month earlier.

The spread between the jumbo 30-year mortgage and the conforming 30-year loan widened to 55 BPS from 52 BPS the previous week based on the U.S. Mortgage Market Index report for the week ended May 20 from Mortech Inc. and

At 3.78 percent, the 15-year fixed-rate mortgage was 2 BPS better than last week’s report from Freddie. The spread between the 15-year and 30-year was 82 BPS, a hair wider than 81 BPS last week.

A seven-basis-point decline was recorded from last week for the hybrid, five-year, Treasury-indexed, adjustable-rate mortgage, which averaged 3.41 percent in Freddie’s survey.

Freddie said the one-year Treasury-indexed ARM averaged 3.11 percent, falling from 3.15 percent the previous week and 3.95 percent in the same week last year. Fannie has the one-year moving from 3.3 percent in the first-half of this year to 3.5 percent in the third quarter and 3.6 percent in the fourth quarter.

The index on the one-year ARM, the yield on the one-year Treasury, was 0.18 percent Wednesday, 1 basis point below the prior Wednesday, the Treasury Department reported. said the six-month LIBOR was 0.41 percent as of Wednesday, unchanged from the prior week.

The share of activity in the most recent Mortgage Market Index report that was for ARMs rose to 9.97 percent from 9.73 percent a week earlier.

ARM share of applications, according to Fannie, will climb from the second quarter’s 6 percent to 7 percent in the second half of 2011. ARM share will start next year at 9 percent and finish at 13 percent.

Refinance share in the Mortgage Market Index report edge marginally closer to exactly a half.

Fannie expects refinance share of originations to go from 40 percent in the second quarter to 35 percent in the third quarter.

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