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Fixed Rates Jump, 1-Year ARM Moves Lower

Rates

Fixed interest rates on home loans surged this past week, while adjustable rates took a turn for the better.

The Primary Mortgage Market Survey from Freddie Mac for the week ended Sept. 18 had 30-year fixed rates averaging 4.23 percent.

The 30 year jumped from a week earlier, when it averaged 4.12 percent, but dropped from a year earlier, when the average was 4.50 percent.

Freddie Mac Chief Economist Frank Nothaft partially attributed the increase to speculation about the Federal Open Market Committee’s interest rate guidance.

The FOMC subsequently issued a statement indicating that while economic activity is moderately expanding and labor market conditions are somewhat improved, “the unemployment rate is little changed and a range of labor market indicators suggests that there remains significant underutilization of labor resources.” But there is enough underlying strength in the broader economy to support ongoing improvement in labor market conditions.

Therefore, the Fed indicated that it would add to its holdings of agency mortgage-backed securities at a pace of $5 billion per month rather than the $10 pace it was on. In addition, the Fed cut its planned monthly additions to its Treasury holdings to $10 billion from $15 billion.

For all of August, thirty-year rates averaged 4.386 percent, slipping from 4.388 percent in July, according to Ellie Mae’s Origination Insight Report.

Not much change can be expected for the 30 year in Freddie’s next report based on Mortgage Daily’s analysis of Treasury market activity. Data reported by the Department of the Treasury indicate that the 10-year Treasury yield averaged 2.61 percent during the days Freddie surveyed lenders this week, while the 10-year yield closed at 2.63 percent Thursday.

A plurality of panelists surveyed by Bankrate.com for the week Sept. 18 to Sept. 24 were more optimistic than Mortgage Daily — predicting that mortgage rates will decline at least 3 BPS over the next week or so. The remaining 60 percent were evenly split about whether rates would rise or stay where they are.

Freddie’s September 2014 Economic and Housing Market Outlook has 30-year rates climbing from 4.1 percent this quarter to 4.3 percent in the fourth quarter and 4.4 percent during the first three months of next year.

The Mortgage Bankers Association, on the other hand, projected in its MBA Mortgage Finance Forecast that interest rates on 30-year mortgages will rise from 4.2 percent in the third quarter to 4.5 percent three months later and 4.9 percent six months later.

Interest rates on jumbo mortgages were 9 BPS better than rates on conforming loans in the U.S. Mortgage Market Index report from LoanSifter/Optimal Blue and Mortgage Daily for the week ended Sept. 12. The jumbo-conforming spread thinned from a negative 13 BPS in the previous report.

Freddie reported average 15-year fixed rates at 3.37 percent, 11 BPS worse than in the week ended Sept. 11. Fifteen-year rates were 86 BPS less than 30-year rates. The spread was the same as in the last report.

Ellie reported that 15-year mortgages accounted for 9.1 percent of August originations, up from 8.9 percent a month earlier.

A seven-basis-point rise from seven days prior left five-year, Treasury-indexed, hybrid, adjustable-rate mortgages averaging 3.06 percent in Freddie’s survey.

Freddie forecasts that hybrid ARMs will inch up from 3.2 percent in the third quarter to 3.3 percent in the final three months of this year and 3.5 percent in the first-quarter 2015.

At 2.43 percent, one-year Treasury-indexed ARMs averaged 2 BPS less than in Freddie’s previous report and were 22 BPS better than in the report for the week ended Sept. 19, 2014.

Freddie predicts that one-year ARMs will average 2.4 percent in the current quarter and rise to 2.5 percent in each of the following two quarters.

The yield on the one-year Treasury note, which is utilized to determine rate and payment changes on one-year ARMs, crept up to 0.12 percent Thursday from 0.11 percent seven days earlier.

At 0.33 percent, the six-month London Interbank Offered Rate has not moved since June, according to data from Bankrate.com.

ARM share of closed-loan production was 6.2 percent last month, narrowing from 6.5 percent in July, Ellie reported.

The most-recent Mortgage Market Index report had ARM share of pricing inquiries at 11.9 percent, wider than 11.4 percent one week prior.

ARM share in Freddie’s forecast is predicted to climb from 12 percent to 13 percent in the fourth quarter and 14 percent in the first-quarter 2015.

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