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15-30 Year Spread at Highest Since 2004

Rates

It’s been nearly five years since the spread between 15-year and 30-year fixed rates has been this wide. Despite an increase in most mortgage rates during the past week, the one-year adjustable-rate mortgage fell, ARM share increased and purchase activity picked up. Treasury activity suggests rates may ease.

Freddie Mac reported in its Primary Mortgage Market Survey for the week ended Aug. 13 that the average 30-year fixed-rate mortgage climbed 7 basis points from last week to 5.29%. But the 30-year was still 123 BPS better than a year earlier.

The increase was attributed by Freddie Mac Chief Economist Frank Nothaft to a strong employment report last week.

Up just 5 BPS from the prior week was the average 15-year fixed-rate mortgage, which Freddie said was 4.68%.

The disparate increases in the 30- and 15-year fixed-rate averages pushed the spread between the two programs to 61 BPS — the highest it has been since the week ending Nov. 4, 2004, when it stood at 62 BPS.

Near midday, the 10-year Treasury note yielded 3.659%, falling from 3.752% last week and suggesting mortgage rates may head lower.

The 100 panelists surveyed by Bankrate.com, however, didn’t offer much direction; 39 projected rates will remain within 2 BPS of their current levels during the next 35 to 45 days, while 38 forecasted a decline and 23 expected an increase.

The five-year Treasury-indexed hybrid ARM averaged 4.75% in Freddie’s latest survey, up just 2 BPS from last week.

But the one-year Treasury-indexed ARM slipped 6 BPS to 4.72%, according to Freddie. At the same time, the yield on the underlying one-year Treasury bill closed down 2 BPS from a week earlier to 0.47% yesterday, data from the U.S. Department of the Treasury indicated.

The six-month London Interbank Offered Rate was 0.89% yesterday, down from 0.91% seven days earlier, according to Bankrate.com. LIBOR’s decrease suggests payments for many subprime borrowers might decline.

Despite a smaller decline in the one-year ARM than the 30-year fixed rate last week, ARM share rose to 5.8% from 5.4% the prior week in the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ended Aug. 7.

MBA said overall applications were down 4% on a seasonally adjusted basis from the previous week, even though mortgage rates were lower last week. The decline was driven by a 7% drop in refinance applications — which represented 52% or all 1003s last week.

Purchase applications were up, however, 1% from the prior week, MBA said.

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