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Treasuries Rally on Stock Selloff

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Treasuries Rally on Stock Selloff

Average 30-year 6.69%

July 26, 2007


photo of Coco Salazar
Heavy selling on Wall Street, boosted by the worsening performance of mortgage loans and mortgage companies, has improved the outlook for mortgage rates. Despite the oncoming decline, originators completed fewer 1003 loan applications.

The 30-year fixed-rate mortgage averaged 6.69%, off 4 basis points from a week ago and 3 BPS from a year ago, according to Freddie Mac’s latest Primary Mortgage Market Survey.

At 6.37% this week, the 15-year average slipped 1 BPS from last week, Freddie said.

The yield on the 10-year Treasury note, which fixed mortgage rates tend to follow, was 4.79% at midday, tumbling 20 BPS for the day and down from 5.10% last Thursday. Treasury prices rose as the Dow Jones Industrial Average witnessed a massive 300-point selloff fueled, in part, by mortgage jitters and a dismal report on new home sales.

At the market’s close today, shares of mortgage lenders — which have been in a free fall, continued to decline. Countrywide Financial Corp. shares were trading at $29.25, down from more than $45 in January; American Home Mortgage’s stock price was $10.63, off from nearly $37 a year ago; and shares of NovaStar Financial Inc., which had been more than $35 last August, closed at $4.47.

Adjustable-rate mortgage averages reportedly improved from last week, with the 5-year Treasury-indexed hybrid ARM falling by 5 BPS to 6.30% and the 1-year Treasury-indexed ARM off by 3 BPS to 5.69% for. The 1-year Treasury bill yielded 4.95% on Wednesday, 3 BPS below the level a week earlier, according to Federal Reserve data.

“Mortgage rates eased this week on market concerns that a further weakening of housing demand this spring will delay any recovery in the sector,” said Frank Nothaft, Freddie chief economist, in a written statement.

Rates are destined to go lower over the next month and a half, according to 50% of the mortgage bankers, brokers and individuals surveyed this week. Of the remaining panelists, 36% forecast rates will remain relatively unchanged and only 14% predicted an upturn.

But the Mortgage Bankers Association’s latest outlook has the 30-year staying around 6.7% this quarter until rising to 6.8% next quarter. For the 1-year ARM, the group sees it averaging 5.6% throughout the rest of the year, according to its latest outlook.

ARM applications comprised 21% of total applications in the week ending July 20, unchanged from the prior week, MBA reported on Wednesday.

Overall, originators completed 4 percent fewer mortgage applications than in the prior week as purchase money demand decreased 5 percent and refinance requests edged down 1 percent, MBA said.

Nonetheless, the refinance share of mortgage applications reportedly inched up from the previous week to 39%.

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