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Fixed Rates Ease, 1-Year ARM Up

Rates

Fixed mortgage rates retreated this week as the Federal Reserve reported it would continue to taper its bond purchases. One-year adjustable-rate mortgages, however, inched up.

At 4.17 percent in Freddie Mac’s Primary Mortgage Market Survey for the week ended June 19, thirty-year fixed rates averaged 3 basis points less than they did seven days prior.

Bond yields turned sharply lower yesterday following the release of the Federal Open Market Committee statement indicating that it would cut from $20 billion to $15 billion the monthly amount of agency mortgage-backed securities it plans to add to its holdings.

“Information received since the Federal Open Market Committee met in April indicates that growth in economic activity has rebounded in recent months,” the statement said. “Labor market indicators generally showed further improvement. The unemployment rate, though lower, remains elevated.”

But fixed rates remain worse than they did during the same week last year, when 30-year mortgages averaged 3.93 percent.

Ellie Mae recently reported that 30-year rates averaged 4.530 percent in May, falling from 4.622 percent a month earlier but worse than 3.747 percent a year earlier.

Next week’s report from Freddie is unlikely to reflect mortgage rates that are much different than this week based on Treasury market activity. During the days that Freddie surveyed lenders, the 10-year Treasury yield averaged 2.63 percent, while it closed at 2.64 percent Thursday, according to Treasury Department data.

An equal share — 43 percent — of Bankrate.com panelists for the week June 19 to June 25 predicted that rates will either increase at least 3 BPS over the next week or remain stationary. Just 14 percent predicted a decline.

On a longer-term basis, Freddie predicts that 30-year rates will average 4.2 percent this quarter and in the third quarter then rise to 4.4 percent in the fourth quarter.

The Mortgage Bankers Association was a little more aggressive in its economic forecast, predicting that 30-year rates will climb from 4.4 percent in the second quarter to 4.6 percent three months later and 4.7 percent in the fourth quarter.

Jumbo mortgage rates were 9 BPS lower than conforming rates in the U.S. Mortgage Market Index report from LoanSifter/Optimal Blue and Mortgage Daily for the week ended June 13. The jumbo-conforming spread thinned from 10 BPS in the previous week.

In Freddie’s most recent survey, 15-year fixed rates averaged 3.30 percent, a single basis point better than in the week ended June 12. Fifteen-year rates were 87 BPS less than 30-year rates, diminishing from an 89-basis-point spread in the previous report.

In May, fifteen-year mortgages accounted for 9.7 percent of all closings, Ellie reported. The share was down from 12.2 percent the prior month.

A 5-basis-point week-over-week decline for the five-year, Treasury-indexed, hybrid, adjustable-rate mortgage left it at 3.00 percent in Freddie’s survey.

Freddie forecasts hybrid ARMs will average 3.1 percent in the second and third quarters then rise to 3.3 percent in the final three-month period of this year.

One-year Treasury-indexed ARMs averaged 2.41 percent in Freddie’s survey, a basis point higher than a week earlier but 16 BPS better than in the week ended June 20, 2013.

The one-year ARM is likely to stay at its current level through the third quarter, according to Freddie’s forecast, then inch up to 2.5 percent in the fourth quarter.

The one-year Treasury yield — which is used to determine rate and payment adjustments on one-year ARMs — slipped to 0.09 percent Thursday from 0.10 percent seven days prior, according to data from the Treasury Department.

Bankrate.com reported the six-month London Interbank Offered Rate at 0.32 percent as of Wednesday, unchanged from the previous week.

ARM share was 7.6 percent in May, unchanged from the prior month, according to Ellie. But ARM share more than doubled from 3.1 percent in May 2013.

In the latest Mortgage Market Index report, ARM share slipped to 11.9 percent from the previous week’s 12.4 percent share.

Freddie’s outlook has ARM share forecasted at 11 percent for the second quarter then rising 1 percentage point each of the following four quarters.

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