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Low Rates Could Fall More

Rates

Fixed rates fell below 4 percent and could be even lower next week, while adjustable-rate mortgages set new records. But longer-term forecasts have fixed-rate mortgages increasing over the next year.

For the fourth week in a row, the 30-year mortgage was 4 percent or less, averaging 3.98 percent in Freddie Mac’s survey of 125 mortgage lenders for the week ended Nov. 23. The 30 year was 4.00 percent last week and 4.40 percent during the same week last year.

For the month of October, the 30-year mortgage averaged 4.36 percent, according to Freddie’s regulator — the Federal Housing Finance Agency. The prior month’s average was 4.16 percent.

The 30-year mortgage could be as much as 7 BPS better in next week’s report from Freddie based on an analysis of Treasury market activity — though extreme market volatility is possible in the near-term because of concern over the European sovereign debt crisis. The yield on the 10-year Treasury closed today at 1.89 percent, down from 1.96 percent as of last week’s survey from Freddie, the Department of the Treasury reported.

The majority of panelists surveyed by Bankrate.com for the week Nov. 23 to Nov. 30 expect that mortgage rates will remain within 2 BPS of current levels. A little more than a quarter predicted an increase, and a fifth saw a decline ahead.

On a more long-term basis, Freddie projects that the 30-year will average 4.00 percent this quarter then rise 20 basis points every three months through mid-2013.

Freddie’s secondary rival, Fannie Mae, forecasted that the 30-year mortgage will average 4.10 percent from this quarter through the third-quarter 2012.

Prospective borrowers on jumbo mortgages paid a 60-basis-point premium over conforming borrowers in the U.S. Mortgage Market Index from Mortech Inc. and MortgageDaily.com for the week ended Nov. 18, unchanged from the previous week. During the same week last year, the jumbo-conforming spread was much higher at 87 BPS.

As was the case for the 30 year, the 15-year mortgage was 1 basis point lower in Freddie’s survey, averaging 3.30 percent this week. Fifteen-year loans were 68 BPS cheaper than 30-year loans, not quite as good a 69 BPS in the previous survey.

At a record-low 2.91 percent, the average five-year, Treasury-indexed, hybrid ARM was 6 BPS better than Freddie’s survey for the week ended Nov. 17.

Also falling to a new low was the one-year Treasury-indexed ARM. The one year was 2.79 percent, improving from 2.98 percent a week earlier and 3.23 percent a year earlier.

Freddie predicts that the one-year ARM will average 2.90 percent this quarter then spend all of next year at 3.0 percent. Fannie, on the other hand, sees the one year frozen at 2.90 percent from the third-quarter 2011 through the third-quarter 2012.

The index for the one-year ARM, the yield on the one-year Treasury note, closed at 0.12 percent today, rising from 0.10 percent last Thursday, according to the Treasury Department data.

The European debt crisis has London banks continuing to charge each other more, with the London Interbank Offered Rate jumping to 0.71 percent as of Tuesday from 0.67 percent last Wednesday. LIBOR, which is the ARM index on many subprime mortgages, was just 0.44 percent a year ago.

Out of all loan inquiries last week, 5.86 percent were for an ARM based on the Mortgage Market Index. ARM share was 5.78 percent in the prior report.

From now through the third-quarter of next year, Freddie projects that ARM share will be 12 percent of originations.

Fannie expects ARM share of loan applications to teeter between 5 and 6 percent from now through the end of next year.

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