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Mortgage Rates Retreat, Even Bigger Drop Possible

Rates

Interest rates on home loans were slightly lower this past week, and all indications are that an even bigger decline is ahead for fixed rates in the next report.

Residential loans that were closed and funded during August had an average 30-year note rate of 3.77 percent, 10 basis points less than the prior month.

A far more significant decline has been made compared to the same month last year, when the average 30-year note rate on loan originations was 4.31 percent.

Those findings were provided by Ellie Mae Inc. in its Origination Insight
Report August 2016
.

On conventional mortgages, last month’s average 30-year rate was 3.81 percent, while it was 3.75 percent on loans insured by the Federal Housing Administration and 3.56 percent on mortgages guaranteed by the Department of Veterans Affairs.

Freddie Mac reported in its Primary Mortgage Market Survey that 30-year fixed rates averaged 3.48 percent in the week ended Sept. 22. Thirty year rates slipped from 3.50 percent the prior week and tumbled from 3.86 percent a year prior.

MBSQuoteline Director Joe Farr noted in a written statement that prices on mortgage-backed securities have since gotten better.

“MBS prices have improved nicely since early in the week when the Freddie Mac survey was conducted,” Farr explained. “This means that mortgage rates on Thursday are a little better than what the survey shows.”

Fixed mortgage rates are likely to be around 5 BPS lower in Freddie’s next survey based on an analysis of Treasury market activity by Mortgage Daily.

A majority of panelists surveyed by Bankrate.com for the week Sept. 22 to Sept. 28 agreed with Mortgage Daily’s prediction. A third expected that rates won’t move more than 2 BPS over the next week, and just 11 percent projected in increase.

Freddie expects average 30-year fixed rates to go from 3.5 percent during the current quarter to 3.6 percent in each of the subsequent three quarters, according to its
September 2016 Economic & Housing Market Forecast.

Fannie Mae predicted in its Housing Forecast: September 2016 that average 30-year fixed rates will climb from 3.4 percent in the third quarter to 3.5 percent in each of the following three quarters.

The jumbo-conforming spread was
6 BPS in the U.S. Mortgage Market Index from OpenClose and Mortgage Daily for the week ended Sept. 16, doubling from the previous week.

As of Freddie’s most-recent report, 15-year fixed rates averaged 2.76 percent, dipping from 2.77 percent in the week ended Sept. 15. At
72 BPS, the spread between 15- and 20-year rates was slightly thinner than 73 BPS in the previous report.

Freddie had five-year, Treasury-indexed, hybrid, adjustable-rate mortgages averaging 2.80 percent this week, 2 BPS better than the last report.

But in its forecast, Freddie predicts that hybrid ARMs will go from 2.9 percent in the third quarter to 3.2 percent each of the following two quarters.

Fannie predicts hybrid ARMs will average 2.8 percent this quarter and 2.9 percent in both the fourth quarter and the first-quarter 2017.

Data from HSH.com indicate that the one-year Treasury-indexed ARM was 2.50 percent as of Thursday, sinking from 2.63 percent a week earlier. Freddie previously reported that the one-year ARM averaged 2.53 percent in the week ended Sept. 24, 2015.

The Consumer Financial Protection Bureau disclosed in a public filing that it began utilizing data from HSH Associates on July 17 for hybrid ARMs in determining average prime offer rates.

The yield on the one-year Treasury note, which serves as an index for one-year ARMs, was 0.60 percent as of Thursday, according to Treasury Department data, no different than seven days earlier.

Another less-utilized ARM index, the six-month London Interbank Offered Rate, was 1.26 percent as of Wednesday, Bankrate.com reported. LIBOR was 1.25 percent seven days earlier.

Ellie’s data indicate that 4.1 percent of all loans closed during August were ARMs, down from 4.5 percent a month earlier and 5.6 percent a year earlier.

ARM share was
6.6 percent in the latest Mortgage Market Index report, wider than 6.1 percent a week earlier.

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