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Jumbos and ARMs Improve as 15-Year Grows More Attractive

Rates

Despite a small uptick in the 30-year mortgage, fixed rates could ease by next week’s reports. Adjustable-rate mortgages were lower, while jumbo mortgages and 15-year loans became less expensive relative to the conforming 30-year mortgage.

A 3-basis-point increase from last week was reported for the average 30-year fixed-rate mortgage by Freddie Mac in its Primary Mortgage Market Survey for the week ended Thursday. The survey of 125 mortgage lenders indicated that the 30 year averaged 4.55 percent this week and was 4.54 percent during the same week last year.

A favorable report on the index of leading indicators was offset by a weaker-than-expected durable goods report, holding rates in check, according to Freddie Mac Chief Economist Frank Nothaft.

The Federal Housing Finance Agency, which regulates Freddie and its secondary rival Fannie Mae, reported that the conforming 30-year mortgage rate averaged 4.79 percent as of the end of June, 13 BPS lower than during the last week of May.

It looks like the 30-year mortgage could be around 10 BPS better in next week’s reports based on 10-year Treasury activity. The 10-year yield was trading around 2.96 percent today, lower than 3.03 percent last Thursday, according to data released by the Department of the Treasury and the Wall Street Journal.

As Congress moves closer to authorizing an increase in the debt ceiling, the yield is likely to decline — though an impasse could spark volatility.

But it’s almost certain that mortgage rates will increase at least 3 BPS over the next week based on 92 percent of the panelists surveyed by Bankrate.com for the week July 28 to Aug. 3. No change was predicted by 8 percent of those surveyed, while nobody forecasted a decline.

Fannie predicted in its July housing forecast that the 30 year will average 4.7 percent in the each of the final three quarters of 2011 then rise to 4.9 percent in the first three months of next year.

Jumbo pricing recently became less expensive. The spread between the jumbo 30-year mortgage and the conforming 30 year fell to 41 BPS from 47 BPS a week earlier in the U.S. Mortgage Market Index report for the week ended July 22 from Mortech Inc. and MortgageDaily.com.

Freddie reported the average 15-year fixed-rate mortgage at 3.66 percent, unchanged from last Thursday. Since the 30-year mortgage rose, the spread between the 30 year and the 15 year widened to 89 BPS this week from 86 BPS a week earlier.

The five-year, Treasury-indexed, hybrid ARM averaged 3.25 percent in Freddie’s latest survey, lower than 3.27 percent in the previous report.

Also lower in Freddie’s survey was the one-year Treasury-indexed ARM, which fell to 2.95 percent from 2.97 percent. The one-year ARM was 3.64 percent a year ago.

Fannie’s forecast has the one-year ARM at 3.1 percent this quarter then gradually rising to 3.6 percent by the end of 2012.

One-year ARM borrowers saw the index on their loans, the yield on the one-year Treasury note, climb from 0.19 percent last Wednesday to 0.21 percent yesterday based on Treasury Department data.

Borrowers whose ARMs are tied to the six-month London Interbank Offered Rate saw the index increase for the third consecutive week. The trend reflects growing concern about banks’ exposure to European sovereign debt. LIBOR rose to 0.43 percent this week from 0.42 percent last Wednesday, according to Bankrate.com.

The share of pricing inquiries that was for ARMs slipped to 9.89 percent in the Mortgage Market Index report from 9.91 percent a week earlier.

ARM share of loan applications will remain at 6 percent from the third quarter until the second-quarter 2012, according to Fannie.

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