Interest Mortgage Rates

The Federal Reserve began to slash short-term interest rates almost a year ago. Yet we have higher mortgage rates now than we had then. What gives?

No single answer explains why some rates have fallen while fixed mortgage rates have climbed from an average of 6.43 percent a year ago to 6.6 percent this week. Among the several reasons, you can sum up the main one in two words: credit risk. Lenders behave cautiously now because they lent recklessly in previous years, leading to a surge of foreclosures.

What rates have done
Traditionally, observers noted a link between 10-year Treasury notes and 30-year fixed-rate mortgages: When the 10-year Treasury yield went up, the 30-year mortgage rate went up, and when the Treasury yield fell, so did mortgage rates. That linkage has broken.

Consider two dates, a little over a year apart, when mortgages had the same rates in Bankrate.com’s weekly survey, while the 10-year Treasury yield dropped more than a percentage point:

* On Aug. 8, 2007, the 30-year fixed averaged 6.66 percent, and the 10-year Treasury note yielded 4.85 percent.
* Fifty-four weeks later, on Aug. 20, 2008, the 30-year fixed averaged 6.66 percent again — and the 10-year

Between those dates, the Fed made a drastic series of cuts in the federal funds rate. That rate, also called the overnight rate, stood at 5.25 percent a year ago. From mid-September to late April, the Fed chopped it to 2 percent in a bid to stimulate the economy. It remains 2 percent.

n the world of mortgages, the big news this week was the decline and fall of IndyMac Bank’s home loan operation. The Southern California bank originated almost $77 billion in home loans last year and was a top 10 lender, according to National Mortgage News. With the demise of stated-income loans this year, IndyMac couldn’t reinvent itself fast enough as a conforming and FHA lender.

At the beginning of the week, IndyMac abruptly announced that it would shut down its mortgage lending operation and close its last mortgage Aug. 15. It said it immediately would stop accepting applications. Then the bank did something unusual: It asked for a 1 percent deposit on mortgages that had been approved and for which the rates had been locked. The 1 percent deposit is due today.

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Mortgage rates fell this week as investors grew anxious about corporate earnings. As stock prices fell, bond yields declined, too — and so did mortgage rates.

The benchmark 30-year fixed-rate mortgage fell 5 basis points, to 6.48 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week’s survey had an average total of 0.37 discount and origination points. One year ago, the mortgage index was 6.78 percent; four weeks ago, it was 6.52 percent.

The benchmark 15-year fixed-rate mortgage fell 8 basis points, to 6.01 percent. The benchmark 5/1 adjustable-rate mortgage fell 4 basis points, to 6.05 percent. The 30-year jumbo, for bigger mortgages, fell 5 basis points, to 7.64 percent.

Rate: 6.52 percent (30-year fixed) Average points: 0.41

Fixed-rate mortgages soared this week and are now at their highest level in nearly 10 months.

The average 30-year fixed-rate mortgage jumped 26 basis points, to 6.52 percent. A basis point is one-hundredth of a percentage point.

The average 15-year fixed — a popular option for refinancing — shot up even higher, rising 28 basis points, to 6.12 percent. The average jumbo 30-year fixed was up 13 basis points, to 7.6 percent.

The one-year adjustable-rate mortgage was up just 2 basis points, to 6.16 percent. However, the popular 5/1 ARM jumped 27 basis points, to 6.07 percent.

Mortgage applications rose sharply after three straight weeks of decline, according to the Mortgage Bankers Association. For the week ending June 6, applications rose a seasonally adjusted 10.9 percent when compared to one week earlier.

Refinancing grew by 8.4 percent while applications for new purchases increased 12.8 percent.

Mortgage rates continued to ride the seesaw this week, down one week and up the next. This time, it was their turn to go up.

The benchmark 30-year fixed-rate mortgage rose 7 basis points, to 6.03 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week’s survey had an average total of 0.31 discount and origination points. One year ago, the mortgage index was 6.29 percent; four weeks ago, it was 5.98 percent.

The benchmark 15-year fixed-rate mortgage rose 9 basis points, to 5.65 percent. The benchmark 5/1 adjustable-rate mortgage went the other way, falling 10 basis points, to 5.85 percent. The benchmark jumbo 30-year fixed, for bigger mortgages, fell 6 basis points, to 7.32 percent.

Countrywide is currently offering a 5.875% APY and 6.20% APR on their 30 year fixed mortgage, and 5.50% APY and 5.60% APR on their Variable 5/1 Adjustable Rate Mortgages.

Of course this depends on many varying factors, and is applicable to first time Countrywide borrowers looking for a refinance.

Mortgage rates were split this week, with the 30-year fixed falling to its lowest level in more than six weeks.

The average 30-year fixed rate fell 3 basis points from the previous week, to 5.95 percent. A basis point is one-hundredth of a percentage point. The 30-year fixed has now fallen 44 basis points in the past two weeks and is at its lowest level since Feb. 6.

By contrast, the average 15-year fixed — a popular option for refinancing — moved up 7 basis points, to 5.53 percent. The average jumbo 30-year fixed fell 6 basis points, to 7.37 percent.

Adjustable-rate mortgages also were split this week. The one-year adjustable-rate mortgage moved up 11 basis points, to 6.25 percent. The popular 5/1 ARM fell 28 basis points, to 6.16 percent.

The recent sharp decline in mortgage rates has triggered a surge in mortgage applications, according to the Mortgage Bankers Association. For the week ending March 21, application volume surged 48.1 percent from the previous week.

Refinancing was particularly strong, moving up 82.2 percent from the previous week.

Mortgage rates had been moving higher until about two weeks ago. Higher rates had depressed mortgage activity, with applications falling five times in the six weeks prior to the week ending March 21.

Buying a home is a huge step for most people. Even the idea of beginning the home search can seem daunting to some. There are some actions you can take, however, before you attempt to get your mortgage that can help ease the confusion and make you a better consumer in the process.

Before you begin looking for a home, attend a homeownership education course offered by the U.S. Department of Housing and Urban Development (HUD). If you cannot find one of these close to you, visit the HUD website and read up on some of the terms, language, and other issues that have to do with buying a home.

If you know of someone who is in the real estate business, have a talk with them and let their expertise help you. They can often give you inside tips that you would not know otherwise.

It is important that once you find a home that you like that you get some idea of its true worth as compared to the other homes in the area. This allows you to avoid being overpriced.

Before you sign a mortgage, make sure you hire a qualified and licensed home inspector to go through the house and the property. These professionals will go over the home and the foundation to make sure that you know exactly what is wrong (if anything) with the home. This can be one of the most important steps to take before buying a home. Once the inspection is complete, you and the seller can determine who is responsible for the repairs needed.

It does not happen often, but some builders and other people will ask you to make false statements on your mortgages application. Sometimes they may tell you to overstate your income level or to falsify your employment history. Do not do that. Giving false information on a loan application is fraud and it can cause you more problems than it is worth.

Sometimes in the pre-mortgage phase people will try to convince you to borrow more money than you can afford to pay back. At other times during the pre-mortgage signing phase, they may ask you to sign a blank document or a document that has blanks on it. You should not sign these types of documents. If a document needs to have blank spaces, put an entry of NA into the blank.

Even if you are dealing with a reputable bank or other institution, it is always a good idea to have a qualified attorney look over the mortgage agreement before you sign. If you are dealing with builders who finance their own homes, it is even more important that you have an attorney look over the contracts.

Some of the current housing mess was caused by lenders who did not fully explain to the buyer the details of the mortgages. This was especially true for those buying sub-prime mortgages. If you are careful and honest and work with reputable lenders, you can avoid a lot of the problems that others are now facing.

Rate: 6.32 percent (30-year fixed) Average Points: 0.39

Mortgage rates were modestly lower this week, bucking a recent trend of rate increases.

The average 30-year fixed rate fell 9 basis points from the previous week, to 6.32 percent. A basis point is one-hundredth of a percentage point.

Meanwhile, the average 15-year fixed — a popular option for refinancing — fell 8 basis points, to 5.79 percent. The average jumbo 30-year fixed was unchanged at 7.43 percent.

Adjustable-rate mortgages were mixed this week. The one-year adjustable-rate mortgage fell 2 basis points, to 5.47 percent. The popular 5/1 ARM rose 4 basis points, to 5.72 percent.

This week also featured a rare twin dose of good news for the U.S. housing market. Mortgage application activity for the week ending Feb. 29 rose for the first time in four weeks, increasing a seasonally adjusted 3 percent from the week before.

Also, overvaluation of home prices appears to be declining sharply in many of the nation’s housing markets, according to a joint-U.S.-housing-valuation analysis by National City Corp. and Global Insight.

Of the 330 metropolitan areas surveyed, 21 had housing markets described as “overvalued” during the fourth quarter of 2007. That’s a decline from a peak of 58 overvalued markets registered in a 2006 survey.

More importantly, the 21 overvalued markets represent just 4 percent of the nation’s housing units, compared to the 20 percent of the nation’s housing units that were overvalued in 2006.

However, the valuation study also provided some more discouraging news for those hoping for a housing recovery later this year.

Home prices declined for the second straight quarter in late 2007, with 291 of the 330 markets sinking, according to the study.

Nationwide, housing prices declined at an annual rate of 5.1 percent, with the worst declines occurring in California, Florida and Michigan.

The study’s authors concluded that despite improved valuation levels, a combination of tightening credit and overall economic weakness is likely to depress real estate returns throughout this year.

Mortgage rates skyrocketed for the third time in the past four weeks and are now at their highest levels since last fall.

The average 30-year fixed rate shot up by 41 basis points from the previous week, to 6.37 percent. A basis point is one-hundredth of a percentage point. This week’s 30-year fixed is at its highest level since Oct. 17, when it was 6.49 percent.

Meanwhile, the average 15-year fixed — a popular option for refinancing — also rose 41 basis points, to 5.87 percent. The average jumbo 30-year fixed rose 39 basis points, to 7.55 percent.

Adjustable-rate mortgages also moved up this week. The one-year adjustable-rate mortgage rose 10 basis points, to 5.56 percent. The popular 5/1 ARM rose 27 basis point, to 5.77 percent.

Mortgage rates have risen substantially for three out of the four weeks since Jan. 23, when the 30-year fixed bottomed out at 5.57 percent. That week, mortgage rates hit their lowest levels since March 2004.

The recent surge in mortgage rates offers more evidence that Federal Reserve interest rate cuts do not directly determine short-term mortgage rate performance. The Fed cut the federal funds rate by 75 basis points on Jan. 22 in an emergency move designed to spark the slowing U.S. economy. The Fed then slashed rates an additional 50 basis points at its regularly scheduled meeting on Jan. 30.

Some observers voiced hopes that the dramatic action would force mortgage rates lower and bring new life to the sagging U.S. housing market. However, since the Jan. 22 cut, mortgage rates have actually risen by 80 basis points. Rates have climbed by at least 18 basis points in three out of the past four weeks.

A drop in requests for mortgage loans this week also appeared to confirm that higher mortgage rates are dampening homeowner enthusiasm for refinancing. Mortgage loan application activity fell for the second consecutive week. Application volume for the week ending Feb. 15 dropped a seasonally adjusted 22.6 percent from the previous week’s reading, according to statistics from the Mortgage Bankers Association.

Refinancing activity took a particularly hard hit, dipping a seasonally adjusted 27.9 percent from the previous week.

Until the last two weeks, mortgage application activity had risen each week since the beginning of the year.