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Mortgage Rates Up, Further Deterioration Ahead

Rates

After ascending to the highest level in more than two years, mortgage rates moved even higher and are likely to be much worse in next week’s report.

Thirty-year fixed rates on residential loans averaged 4.16 percent in the Freddie Mac Primary Mortgage Market Survey for the week ended Dec. 15.

Long-term mortgage rates have not been this high
since the week that ended on  Oct. 2, 2014, when Freddie reported the average at 4.19 percent.

Rates rose from
4.13 percent the prior week, marking the seventh straight week-over-week increase. In the same week last year, 30-year fixed rates averaged 3.97 percent.

Freddie Mac Chief Economist Sean Becketti explained that the survey was completed prior the Federal Open Market Committee’s announcement of rate increases.

“As was almost-universally expected, the FOMC closed the year with its one-and-only rate hike of 2016,” Becketti stated. “The consensus of the committee points to more rate hikes in 2017. However, the experience of this year combined with the policy uncertainty that accompanies a new administration suggests a wait-and-see outlook.”

Joe Farr, director at MBSQuoteline, told Mortgage Daily in a written statement that because Freddie’s survey doesn’t reflect the impact of Wednesday’s FOMC statement, rates as of today are actually much higher than in the survey.

An analysis of Treasury market activity by Mortgage Daily indicates that fixed rates are likely to be around 10 basis points worse in Freddie’s next survey.

Sixty-three percent of panelists surveyed by Bankrate.com for the week Dec. 15 to Dec. 21 agreed with Mortgage Daily’s forecast. A quarter expected rates to move no more than 2 BPS, and just 13 percent projected a decline.

The Mortgage Bankers Association predicted in its MBA Mortgage Finance Forecast that 30-year fixed rates will average 3.8 percent in the fourth quarter then rise to 4.3 percent three months later and 4.4 percent in the second-quarter 2017.

A report from Moody’s Investors Service said that the 25-basis-point increase in the Fed’s benchmark rate
— along with additional rate increases next year — will leave the rate at 1.5 percent by the end of next year.

Moody’s added that it “anticipates the equilibrium federal funds rate to converge around 3.0 percent and the 10-year yield to settle at around 4.0 percent within the next five years.” The 10-year yield closed at 2.60 percent Thursday.

Moody’s expects higher rates to impact credit standards.

“As long-term interest rates rise and mortgage loans become less affordable, originators will come under pressure to lower their credit standards in order to maintain volume,” Moody’s Vice President Sonny Weng said in a statement.

This means that loan-to-value ratios on securitized loans will be higher, debt-to-income ratios will increase and FICO scores will fall.

Jumbo rates were
7 BPS less than conforming rates in the U.S. Mortgage Market Index report from Mortgage Daily and OpenClose for the week ended Dec. 9.

At 3.37 percent, average 15-year fixed rates were a basis point more than in Freddie’s survey for the week ended Dec. 8, 2016.
The spread between 15- and 30-year rates widened to 79 BPS from the previous week’s 77 BPS.

A 2-basis-point increase from the previous report left five-year, Treasury-indexed, hybrid, adjustable-rate mortgages averaging 3.19 percent in Freddie’s survey.

Data from the Department of the Treasury indicate that the yield on the one-year Treasury note closed Thursday at 0.91 percent, rising from 0.84 percent seven days earlier.

At 1.30 percent as of Wednesday, the six-month London Interbank Offered Rate
slightly higher than 1.29 percent a week prior, according to Bankrate.com.

ARM share was 8.1 percent in the most-recent Mortgage Market Index report.

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